UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2014 or
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ___________________ to _______________________
Commission file number 000-21615
PRESSURE BIOSCIENCES, INC.
(Exact Name of Registrant as Specified in its Charter)
Massachusetts
(State or Other Jurisdiction of Incorporation or
Organization)
04-2652826
(I.R.S. Employer Identification No.)
14 Norfolk Avenue
South Easton, Massachusetts
(Address of Principal Executive Offices)
(508) 230-1828
(Registrant’s Telephone Number, Including Area
Code)
02375
( Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share
Preferred Share Purchase Rights
OTC Markets Group Inc
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
(Title of Class)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that registrant was required to submit and post such files.
Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o
Non-accelerated filer o Smaller reporting company x
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2014
was $4,690,565 based on the closing price of $0.36 per share of Pressure BioSciences, Inc. common stock as quoted on the OTC Markets QB
exchange on that date.
As of March 31, 2015, there were 19,070,654 shares of the registrant’s common stock outstanding.
N/A.
Documents Incorporated by Reference
ITEM 1. BUSINESS.
ITEM 1A. RISK FACTORS.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
ITEM 2.
PROPERTIES.
ITEM 3. LEGAL PROCEEDINGS.
ITEM 4. MINE SAFETY DISCLOSURES
TABLE OF CONTENTS
PART I
PART II
ITEM 5.
ITEM 6.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES.
SELECTED FINANCIAL DATA.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.
ITEM 7.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
ITEM 9.
ITEM 9A. CONTROLS AND PROCEDURES.
ITEM 9B. OTHER INFORMATION.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
ITEM 11. EXECUTIVE COMPENSATION.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
ITEM 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; AND DIRECTOR INDEPENDENCE.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 15. Exhibits and Financial Statement Schedules.
PART IV
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Throughout this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “the Company” and “our Company” refer to Pressure
BioSciences, Inc., a Massachusetts corporation, and unless the context indicates otherwise, also includes our wholly-owned subsidiary.
Introductory Comment
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases,
forward-looking statements are identified by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,”
“believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements. Such
statements include, without limitation, statements regarding:
● our need for, and our ability to raise, additional equity or debt financing on acceptable terms, if at all;
● our need to take additional cost reduction measures, cease operations or sell our operating assets, if we are unable to obtain
sufficient additional financing;
● our belief that we will have sufficient liquidity to finance normal operations for the foreseeable future;
● the options we may pursue in light of our financial condition;
● the amount of cash necessary to operate our business;
● the anticipated uses of grant revenue and the potential for increased grant revenue in future periods;
● our plans and expectations with respect to our continued operations;
● the expected increase in the number of pressure cycling technology (“PCT”) and constant pressure (“CP”) based units installed
and the increase in revenues from the sale of consumable products and extended service contracts;
● our belief that PCT has achieved initial market acceptance in the mass spectrometry and other markets;
● the expected development and success of new instrument and consumables product offerings;
● the potential applications for our instrument and consumables product offerings;
● the expected expenses of, and benefits and results from, our research and development efforts;
● the expected benefits and results from our collaboration programs, strategic alliances and joint ventures;
● our expectation of obtaining additional research grants from the government in the future;
● our expectations of the results of our development activities funded by government research grants;
● the potential size of the market for biological sample preparation;
● general economic conditions;
● the anticipated future financial performance and business operations of our company;
● our reasons for focusing our resources in the market for genomic, proteomic, lipidomic and small molecule sample preparation;
● the importance of mass spectrometry as a laboratory tool;
● the advantages of PCT over other current technologies as a method of biological sample preparation in biomarker discovery,
forensics, and histology and for other applications;
● the capabilities and benefits of our PCT sample preparation system, consumables and other products;
● our belief that laboratory scientists will achieve results comparable with those reported to date by certain research scientists who
have published or presented publicly on PCT and our other products;
● our ability to retain our core group of scientific, administrative and sales personnel; and
● our ability to expand our customer base in sample preparation and for other applications of PCT and our other products.
These forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors that may
cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity,
performance or achievements, expressed or implied, by such forward-looking statements. Also, these forward-looking statements represent
our estimates and assumptions only as of the date of this Annual Report on Form 10-K. Except as otherwise required by law, we expressly
disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this Annual
Report on Form 10-K to reflect any change in our expectations or any change in events, conditions or circumstances on which any of our
forward-looking statements are based. Factors that could cause or contribute to differences in our future financial and other results include
those discussed in the risk factors set forth in Part I, Item 1A of this Annual Report on Form 10-K as well as those discussed elsewhere in this
Annual Report on Form 10-K. We qualify all of our forward-looking statements by these cautionary statements.
A. ITEM 1. BUSINESS.
Throughout this document we use the following terms: Barocycler ®, PULSE®, and BioSeq®, which are registered trademarks of the
Company. We also use the terms ProteoSolveTM, ProteoSolveLRS
Pestle, PCT-HD, Barozyme and BaroFlex Strips, all of which are unregistered trademarks of the Company.
TM, the Power of PCT TM, the PCT ShredderTM, HUB440, HUB880, micro-
Overview
We are focused on solving the challenging problems inherent in biological sample preparation, a crucial laboratory step performed by
scientists worldwide working in biological life sciences research. Sample preparation is a term that refers to a wide range of activities that
precede most forms of scientific analysis. Sample preparation is often complex, time-consuming and, in our belief, one of the most error-prone
steps of scientific research. It is a widely-used laboratory undertaking – the requirements of which drive what we believe is a large and
growing worldwide market. We have developed and patented a novel, enabling technology platform that can control the sample preparation
process. It is based on harnessing the unique properties of high hydrostatic pressure. This process, called pressure cycling technology, or PCT,
uses alternating cycles of hydrostatic pressure between ambient and ultra-high levels i.e., 35,000 pounds per square inch (“psi”) or greater to
safely, conveniently and reproducibly control the actions of molecules in biological samples, such as cells and tissues from human, animal,
plant and microbial sources.
Our pressure cycling technology uses internally developed instrumentation that is capable of cycling pressure between ambient and ultra-
high levels at controlled temperatures and specific time intervals, to rapidly and repeatedly control the interactions of bio-molecules, such as
deoxyribonucleic acid (“DNA”), ribonucleic acid (“RNA”), proteins, lipids and small molecules. Our laboratory instrument, the Barocycler ®,
and our internally developed consumables product line, which include our Pressure Used to Lyse Samples for Extraction (“PULSE”) tubes,
and other processing tubes, and application specific kits such as consumable products and reagents, together make up our PCT Sample
Preparation System (“PCT SPS”).
We hold 14 United States and 10 foreign patents covering multiple applications of PCT in the life sciences field. Our pressure cycling
technology employs a unique approach that we believe has the potential for broad use in a number of established and emerging life sciences
areas, which include:
● biological sample preparation in such study areas as genomic, proteomic, lipidomic, metabolomic and small molecule;
● pathogen inactivation;
● protein purification;
● control of chemical reactions, particularly enzymatic; and
● immunodiagnostics.
We are also the exclusive distributor throughout all of the Americas for the Constant Systems cell disruption equipment, parts, and
consumables. Constant Systems, Ltd (“CS”), a British company located about 90 minutes northwest of London, England, has been providing
niche biomedical equipment, related consumable products, and services to a global client base since 1989. CS designs, develops, and
manufactures high pressure cell disruption equipment required by life sciences laboratories worldwide, particularly disruption systems for the
extraction of proteins. The CS equipment provides a constant and controlled cell disruptive environment, giving the user superior, constant,
and reproducible results whatever the application. CS has nearly 900 units installed in over 40 countries worldwide. The CS cell disruption
equipment has proven performance in the extraction of cellular components, such as protein from yeast, bacteria, mammalian cells, and other
sample types.
The CS pressure-based cell disruption equipment and the PBI PCT instrumentation complement each other in several important
ways. While both the CS and PBI technologies are based on high pressure, each product line has fundamental scientific capabilities that the
other does not offer. PBI’s PCT Platform uses certain patented pressure mechanisms to achieve small-scale, molecular level effects. CS’s
technology uses different, proprietary pressure mechanisms for larger-scale, non-molecular level processing. In a number of routine laboratory
applications, such as protein extraction, both effects can be critical to success. Therefore, for protein extraction and a number of other
important scientific applications, we believe laboratories will benefit by using the CS and PBI products, either separately or together.
1
Within the broad field of biological sample preparation, we focus the majority of our PCT and CP product development efforts in three
specific areas: biomarker discovery (primarily through mass spectrometric analysis), forensics and histology.
● Biomarker Discovery - Mass Spectrometry. A biomarker is any substance (e.g., protein) that can be used as an indicator of the
presence or absence of a particular disease-state or condition, to measure disease progression, and to measure the effects of
therapy. Biomarkers can help in the diagnosis, prognosis, therapy, prevention, surveillance, control, and cure of diseases and
medical conditions.
A mass spectrometer is one of the laboratory instruments used in the analysis of biological samples, primarily proteins, in life sciences
research. It is frequently used to help discover biomarkers. According to a recently published market report by Transparency Market
Research (www.transparencymarketresearch.com) "Spectrometry Market (Atomic, Molecular and Mass Spectrometry) - Global
Scenario, Trends, Industry Analysis, Size, Share & Forecast 2011 – 2017," the global spectrometry market was worth $10.2 billion in
2011 and is expected to reach $15.2 billion in 2017, growing at a compound annual growth rate of 6.9% from 2011 to 2017. In the
overall global market, the North American market is expected to maintain its lead position in terms of revenue until 2017 and is
expected to have approximately 36.2% of the market revenue share in 2017 followed by Europe. We believe that both PCT and CP
based products offer significant advantages in speed and quality compared with current techniques used in the preparation of samples
for mass spectrometry analysis.
● Forensics. The detection of DNA has become a part of the analysis of forensic samples by laboratories and criminal justice agencies
worldwide in their efforts to identify the perpetrators of violent crimes and missing persons. Scientists from the University of North
Texas and Florida International University have reported improvements in DNA yield from forensic samples e.g., bone, and hair,
using PCT in the sample preparation process. We believe PCT may be capable of differentially extracting DNA from sperm and
female epithelial cells in swabs collected from rape victims and stored in rape kits. According to the Joyful Arts Foundation’s
website, an organization
remain unsolved
(http://endthebacklog.org/whatisthebacklog.htm), “Experts in the federal government estimate that there are hundreds of thousands
of untested rape kits in police and crime lab storage facilities throughout the United States.” We believe this backlog exists for
reasons such as cost, processing time and quality of results. We further believe that the ability to differentially extract DNA from
the sperm while not extracting DNA from the female epithelial cells could reduce the cost of such testing, while increasing quality,
safety and speed.
focused on bringing
to all victims of
rape cases
justice
that
● Histology. The most commonly used technique worldwide for the preservation of biopsies of cancer and other tissues for subsequent
pathology evaluation is formalin-fixation followed by paraffin-embedding (“FFPE”). We believe that the quality and analysis of
FFPE tissues is highly problematic. We believe PCT offers significant advantages over current processing methods, which include
standardization, speed, biomolecule recovery and safety.
Our customers include researchers at academic laboratories, government agencies, biotechnology, pharmaceutical and other life sciences
companies in the United States, and distribution partners in foreign countries.
We have experienced negative cash flows from operations with respect to our business since inception. As of December 31, 2014, we did
not have adequate working capital resources to satisfy our current liabilities. Based on our current projections, including equity and debt
financing subsequent to December 31, 2014, we believe our current and projected cash resources will enable us to extend our cash resources
for the foreseeable future.
The audit report issued by our independent registered public accounting firm on our audited consolidated financial statements for the
fiscal year ended December 31, 2014, contains an explanatory paragraph regarding our ability to continue as a going concern. The audit report
issued by our independent registered public accounting firm for our financial statements for the fiscal year ended December 31, 2014 states
that our auditing firm has substantial doubt in our ability to continue as a going concern due to the risk that we may not have sufficient cash
and liquid assets to cover our operating and capital requirements for the next twelve-month period; and, if sufficient cash cannot be obtained,
we would have to substantially alter, or possibly even discontinue, operations. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
2
The conditions described above could adversely affect our ability to obtain additional financing on favorable terms, if at all, and may
cause investors to have reservations about our long-term prospects, and may adversely affect our relationships with customers. There can be
no assurance that our auditing firm will not issue the same opinion in the future. If we cannot successfully continue as a going concern, our
stockholders may lose their entire investment in us.
Developments
We reported a number of accomplishments during 2014 including:
● On January 29, 2014 we closed the second tranche of our Series K PIPE, resulting in the receipt of $1,218,750.
● On February 28, we closed the third tranche of our Series K PIPE, resulting in the receipt of $630,360.
● On March 19, we announced the release and initial sale of the Barocycler HUB880, a “first-in-kind” ultra high pressure
bench-top instrument system.
● On March 30, we announced our Q4 and FY 2013 financial results, including record quarterly instrumentation and
consumables sales, and record annual product and total revenue.
● On March 30, we reiterated our guidance that the Company is on target to release our cutting-edge, microwell-based, high
throughput Barocycler instrument at the annual meeting of the American Society for Mass Spectrometry in mid-June 2014.
● On May 5, we announced that we were selected to present at the Cavendish Global Health Impact Forum, whose goal was
to bring together leading family offices and their foundations seeking impact investment, grant-giving, and philanthropy
opportunities within health and life sciences.
● On June 15, we unveiled our much anticipated, first-in-class, bench top, high throughput, PCT-based instrument
(Barozyme HT48) at the ASMS Annual Conference. The new Barozyme HT48 system was designed to integrate well with
current standardized, high-throughput, liquid-handling laboratory automation and robotics installed in tens of thousands of
biological research laboratories worldwide.
● On June 19, we announced that scientists from six separate research groups presented data at the ASMS Annual
Conference showing the use of PBI’s patented PCT Platform for the preparation of samples resulted in significantly
improved time and/or cost efficiencies of test results.
● On June 26, we announced the engagement of IssuWorks and their management team to review strategic and financing
alternatives, including the possible spin-off of vertical market applications into new, stand-alone businesses. Issuworks
was founded by noted Wall Street executives, including David Weild (former vice chairman of NASDAQ, former head of
global equity transactions at Prudential Securities and president of PrudentialSecurities.com, considered the “Father” of the
JOBS Act) and Ed Kim (former biotech analyst at major Wall Street firms and former head of new products at NASDAQ).
● On July 22, we announced the plan to develop a front-end, sample preparation method for Parabase Genomics enhanced
third generation sequencing test for newborn screening.
● On August 14, we announced Q2 and YTD 2014 financial results. Products and services revenue for the quarter was up
56%, led by consumables revenue which increased 86% over Q2 2013. For the six month period, products and services
revenue was up 70% over the same period in 2013, while consumables revenue increased 93% during the same period. We
also reported that we successfully launched the high throughput Barozyme HT48 System in mid-June.
● On September 19, we announced we had successfully completed the first phase of its commercialization plan for its
recently released high throughput PCT-based instrument system, the Barozyme HT48.
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● On October 20, we announced a partnership with Powertech Technology Company Ltd, to develop the China market for
Powertech has a strong distribution and support network of 20 offices, 60
PBI’s PCT Platform.
sales/marketing/service/engineering staff, and multiple sub-dealers throughout China.
● On October 27, we announced that a breakthrough method to permit quantification of thousands of proteins in needle
biopsy samples in 12 hours was presented by Professor Aebersold of ETH Austria at a recent major international scientific
meeting, and that the method was enabled by PBI’s PCT sample preparation platform.
● On November 17, we announced Q3 and YTD 2014 financial results. Product and services revenue rose 14% (Q3) and
45% (YTD); consumable sales rose 48% (YTD), and operating loss decreased (Q3). The Company announced that the
Series K financing had raised more than $3.3 million over the past 11 months.
● On November 18, we announced the shipment of the first two Barozyme HT48 high throughput systems for evaluation and
possible sale, one to a leading biotechnology company and the other to a renowned academic/research institution
(Georgetown University).
● On December 10, we announced that the evaluation of our third Barozyme HT48 System had commenced at the Feinberg
School of Medicine at Northwestern University. We also confirmed that we were planning to strengthen and expand our
marketing, sales, manufacturing, and engineering services areas.
Liquidity
Management has developed a plan to continue operations. This plan includes controlling expenses, streamlining operations, and obtaining
capital through equity and/or debt financing. In the Series K Private Placement, we sold units consisting of Preferred Stock convertible into
the Company’s common stock (“common stock”) and warrants to purchase shares of common stock for gross aggregate proceeds of
approximately $3,332,110 in five tranches. On December 23, 2014, we closed a series of warrant reset agreements with 30 warrant holders in
order to re-price their common stock Purchase Warrants. In consideration for the Warrant Holder exercising their outstanding Warrants by or
before December 23, 2014, the Company agreed to reduce the exercise price to $0.25 per Warrant share. In addition, for each Warrant
exercised the Warrant Holder received a new Warrant to purchase that same number of Warrant Shares as exercised, at an exercise price of
$0.40 per share. As a result of the Warrant Reset Agreements, the Company received $903,000 and incurred $40,880 in fees. In November of
2014 we were awarded a $1,020,000 NIH SBRI II grant. In addition we borrowed $1,428,561 in new debt during the year and made payments
on new and existing debt of $694,609 and converted $436,500 of debt to equity.
Although we have successfully completed equity financings and reduced expenses in the past, we cannot assure our investors that our
plans to address these matters in the future will be successful. Additional financing may not be available to us on a timely basis or on terms
acceptable to us, if at all. In the event we are unable to raise sufficient funds on terms acceptable to us, we may be required to:
● severely limit or cease our operations or otherwise reduce planned expenditures and forego other business opportunities, which
could harm our business. The accompanying financial statements do not include adjustments that may be required in the event of
the disposal of assets or the discontinuation of the business;
● obtain financing with terms that may have the effect of diluting or adversely affecting the holdings or the rights of the holders of our
capital stock; or
● obtain funds through arrangements with future collaboration partners or others that may require us to relinquish rights to some or
all of our technologies or products
Corporate Information
We were incorporated in the Commonwealth of Massachusetts in August 1978 as Boston Biomedica, Inc. In September 2004, we
completed the sale of Boston Biomedica’s core business units and began to focus exclusively on the development and commercialization of
the PCT platform. Following this change in business strategy, we changed our legal name from Boston Biomedica, Inc. to Pressure
BioSciences, Inc. (“PBI”). We began operations as PBI in February 2005, research and development activities in April 2006, early marketing
and selling activities of our Barocycler instruments in late 2007, and marketing and selling of our PCT-based instrument platform in 2012.
4
Available Information
Our Internet website address is http://www.pressurebiosciences.com. Through our website, we make available, free of charge, reports we
file with the Securities and Exchange Commission (“SEC”), which include, but are not limited to, our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and any and all amendments to such reports, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. These SEC reports can be also accessed through the investor relations section
of our website. The information found on our website is not part of this or any other report we file with or furnish to the SEC.
You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC
20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet website that contains reports, proxy and information statements and other information regarding Pressure BioSciences
and other issuers that file electronically with the SEC. The SEC’s Internet website address is http://www.sec.gov.
Sample Preparation for Genomic, Proteomic, Lipidomic and Small Molecule Studies
The Market
Since February 2005, we have focused substantially all of our research and development and commercialization efforts on sample
preparation for genomic, proteomic, lipidomic, and small molecule studies. This market is comprised of academic and government research
institutions, biotechnology and pharmaceutical companies, and other public and private laboratories that are engaged in studying genomic,
proteomic and small molecule material within plant and animal cells, and tissues. We elected to initially focus our resources in the market of
genomic, proteomic and small molecule sample preparation because we believe it is an area that:
● is a rapidly growing market;
● has a large and immediate need for better technology;
● is comprised mostly of research laboratories, which are subject to minimal governmental regulation;
● is the least technically challenging application for the development of our products;
● is compatible with our technical core competency; and
● we currently have strong patent protection.
We believe that our existing PCT and CP-based instrumentation and related consumable products fill an important and growing need in
the sample preparation market for the safe, rapid, versatile, reproducible and quality extraction of nucleic acids, proteins and small molecules
from a wide variety of plant and animal cells and tissues.
Biomarker Discovery - Mass Spectrometry
A biomarker is any substance (e.g., protein) that can be used as an indicator of the presence or absence of a particular disease-state or
condition, and to measure the progression and effects of therapy. Biomarkers can help in the diagnosis, prognosis, therapy, prevention,
surveillance, control, and cure of diseases and medical conditions.
A mass spectrometer is a laboratory instrument used in the analysis of biological samples, primarily proteins, in life sciences research. It
is frequently used to help discover biomarkers. According to a recently published market report by Transparency Market Research
(www.transparencymarketresearch.com) "Spectrometry Market (Atomic, Molecular and Mass Spectrometry) - Global Scenario, Trends,
Industry Analysis, Size, Share & Forecast 2011 – 2017," the global spectrometry market was worth $10.2 billion in 2011 and is expected to
reach $15.2 billion in 2017, growing at a compound annual growth rate of 6.9% from 2011 to 2017. In the overall global market, the North
American market is expected to maintain its lead position in terms of revenue till 2017 and is expected to have approximately 36.2% of the
market revenue share in 2017 followed by Europe. We believe PCT and CP-based products offes significant advantages in speed and quality
compared with current techniques used in the preparation of samples for mass spectrometry analysis.
Our plan is to focus primarily on the application of PCT-enhanced protein extraction and CP-based digestion for the mass spectrometry
market and the advantages of PCT and CP in this market, and the use of PCT and CP in biomarker discovery, soil and plant biology, counter
bio-terrorism and tissue pathology applications.
5
Forensics
The detection of DNA has become a part of the analysis of forensic samples by laboratories and criminal justice agencies worldwide in
their efforts to identify the perpetrators of violent crimes and missing persons. Scientists from the University of North Texas and Florida
International University have reported improvements in DNA yield from forensic samples e.g., bone and hair using PCT in the sample
preparation process. We believe that PCT may be capable of differentially extracting DNA from sperm and female epithelial cells in swabs
collected from rape victims and stored in rape kits. We also believe that there are many completed rape kits that remain untested for reasons
such as cost, time and quality of results. We further believe that the ability to differentially extract DNA from sperm and not epithelial cells
could reduce the cost of such testing, while increasing quality, safety and speed.
Histology
The most commonly used technique worldwide for the preservation of cancer and other tissues for subsequent pathology evaluation is
formalin-fixation followed by paraffin-embedding, or FFPE. We believe that the quality and analysis of FFPE tissues is highly problematic,
and that PCT offers significant advantages over current processing methods, including standardization, speed, biomolecule recovery, and
safety.
Sample Extraction Process
The process of preparing samples for genomic, proteomic and small molecule studies includes a crucial step called sample extraction or
sample disruption. This is the process of extracting nucleic acid i.e., DNA and/or RNA, proteins or small molecules from the plant or animal
cells and tissues that are being studied. Sample preparation is widely regarded as a significant impediment to research and discovery and
sample extraction is generally regarded as the key part of sample preparation. Our current commercialization efforts are based upon our belief
that pressure cycling technology provides a superior solution to sample extraction compared with other available technologies or procedures
and can thus significantly improve the quality of sample preparation.
Collaboration Program
Our collaboration program is an important element of our business strategy. Initiating a collaboration with a researcher involves the
installation of a Barocycler instrument for an agreed upon period of time of approximately three to six months, and the execution of an agreed
upon work plan. Our primary objectives for entering into a collaboration agreement include:
● the development of a new application for PCT and CP in sample preparation;
● the advancement and validation of our understanding of PCT and CP within an area of life sciences in which we already offer
products;
● the demonstration of the effectiveness of PCT and CP to specific research scientists who we believe can have a positive impact on
market acceptance of PCT; and
● the expectation of peer-reviewed publications and/or presentations at scientific meetings by a third party on the merits of PCT and
CP.
Since we initiated our collaboration program in June 2005, third party researchers have cited the use of our PCT platform in publications
and presentations. We believe that this program has provided and continues to provide us with independent and objective data about PCT from
well-respected laboratories in the United States and throughout the rest of the world.
Company Products
We believe our PCT and CP products allow researchers to improve scientific research studies in the life sciences field. Our products are
developed with the expectation of meeting or exceeding the needs of research scientists while enhancing the safety, speed and quality that is
available to them with existing sample preparation technology.
Barocycler Instrumentation
Our Barocycler product line consists of laboratory instrumentation that subjects a sample to cycles of pressure from ambient to ultra-high
levels and then back to ambient; all in a precisely controlled manner. Our instruments, the Barocycler NEP3229 and Barocycler NEP2320, use
cycles of high, hydrostatic pressure to quickly and efficiently break up the cellular structures of a specimen to release nucleic acids, proteins,
lipids and small molecules from the specimen into our consumable processing tube, referred to as our PULSE Tubes. Our Barocycler
instrumentation is designed to fit on a laboratory bench top, inside a biological safety cabinet, or on the shelf of a laboratory cold room. Our
instruments have an external chiller hook-up (to control temperature during the PCT process), automatic fill and dispensing valves, and an
integrated micro-processor keypad. The microprocessor is capable of saving up to 99 specific PCT protocols; so, the researcher can achieve
maximum reproducibility for the extraction of nucleic acids, proteins, lipids, or small molecules from various biological samples. Our
Barocycler instruments and our consumable products make up our current PCT Sample Preparation System (See below).
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Barocycler NEP3229 – The Barocycler NEP3229 contains two units – a user interface and a power source – comprised primarily of a 1.5
horsepower motor and pump assembly (hydraulic). Combined, the two components of the NEP3229 weigh approximately 350 pounds. The
Barocycler NEP3229 is capable of processing up to three samples simultaneously using our specially designed, single-use PULSE Tubes and
up to 48 samples simultaneously using our specially-designed MicroTubes.
Barocycler NEP2320 – The Barocycler NEP2320 is a smaller, more compact version of our NEP3229 unit. It weighs approximately 80
pounds (with accessories), and works on compressed air (pneumatic) instead of hydraulics like the larger NEP3229 unit. Because this
instrument is pneumatic, the NEP2320 can be easily attached by an air hose to a typical 85 psi air compressor found in most scientific
laboratories as well as many consumer-sold portable compressors or even to bottled gas. This instrument is used by our sales directors as a
demonstration instrument and is marketed as a second instrument alternative to our PCT SPS. The Barocycler NEP2320 is capable of
processing one sample at a time using our specially designed, single-use PULSE Tubes and up to 16 samples simultaneously using our
specially-designed MicroTubes.
Barocycler HUB440 – The Barocycler HUB440 was introduced to collaborators in the electron paramagnetic resonance (“EPR”) market
in 2011 for testing in a laboratory environment, and to elicit feedback from research scientists on performance and capabilities. The
Barocycler HUB440 is capable of creating and controlling hydrostatic pressure from 35 Bar (500 psi) to 4,000 Bar (58,000 psi). It is computer
controlled, and runs on software that was specially-written by PBI in LabVIEW (by National Instruments Corporation). PBI owns the rights
and has a license to use the specialty LabVIEW software. The Barocycler HUB440 is the first portable, ready to use pressure generator for the
laboratory bench. We believe that over the coming years, the Barocycler HUB440 will be the main instrument in the Company’s pressure-
based instrument line.
PCT MicroTube Adapter Kit – The PCT MicroTube Adapter Kit includes an ergonomically designed, space-saving Workstation, PCT
MicroTubes and MicroCaps, and specialized tools to enable the user to process up to forty-eight samples simultaneously in our PCT SPS, as
compared to three with the Barocycler NEP3229.
The Shredder SG3 –The Shredder SG3 is a low shear mechanical homogenization system for use with tough, fibrous and other difficult-
to-disrupt tissues and organisms. The Shredder SG3 System uses a variety of Shredder PULSE Tubes to directly and rapidly grind a biological
sample which, when combined with selected buffers, can provide effective extraction of proteins, DNA, RNA, lipids and small molecules
from tissues and organisms. The Shredder SG3 features a three position force setting lever, which enables the operator to select and apply
reproducible force to the sample during the shredding process and eliminates the need for the operator to exert force for long periods when
processing one or more samples.
Barocycler HUB880 - The Barocycler HUB880 is a compact, portable, bench-top, ultra-high pressure generator that uses an air pressure-
to-liquid pressure intensifier allowing the user to generate fluid pressure as high as 90,000 psi (~6.2. kilobar) with input air pressure of just
126 psi. The HUB880 can be operated through a simple front panel or controlled using an optional external Data Acquisition and Control
Module for dynamic pressure control. We believe that the HUB880 will be well accepted by scientists that need to achieve super high
pressure, such as those working in the food and vaccine industries.
Barozyme HT48 - The Barozyme HT48 is a high throughput bench-top instrument designed for accelerated enzymatic digestion of
proteins at high pressure. The Barozyme HT48 uses an air-pressure-to-liquid-pressure intensifier system, with a pressure amplification ratio of
160:1, to reach an output pressure of 20,000 psi (~1.4 kbar or ~140 MPa). The Barozyme HT48 is capable of processing up to 48 samples at a
time in six single-use BaroFlex 8-well Strips in the Barozyme Sample Carrier. Typical trypsin digestion times can be reduced from hours to
minutes. We believe the Barozyme HT48 will allow us to secure a strategic partnership with one or more large, multi-national companies that
sell mass spectrometry instruments to the worldwide proteomics market.
BaroFlex 8-well Processing Strips - Baroflex 8-well Strips are used in the Barozyme HT48 (See Specification Sheet) for pressure-
enhanced enzymatic digestion at 20,000 psi (~1.4 kbar or ~140 MPa). BaroFlex 8-well Strips are made of special high density polyethylene
(HDPE) and hold up to 140µl when capped with the BaroFlex Cap Strips or Mats. BaroFlex 8-Cap Strips and BaroFlex 24-Cap Mats are made
of silicone. These single-use caps are designed to seal BaroFlex 8-well Strips tightly and to prevent fluid exchange between the sample and
the Barozyme chamber fluid during pressure cycling. The silicone caps are available as strips of 8, or mats of 24 caps.
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PCT-HD - The PCT-HD System combines two of the Company’s unique products: the recently released, patent-pending µPestle
consumable with an enhanced Barocycler NEP2320 instrument. This combination enables faster, less cumbersome and higher quality
homogenization, extraction, and digestion of proteins. PCT-HD was developed by the Company’s scientists and engineers in collaboration
with Professor Ruedi Aebersold and Dr. Tiannan Guo of the Institute of Molecular Systems Biology, ETH Zurich, and the University of
Zurich, both in Zurich, Switzerland. Drs. Aebersold and Guo combined PCT-HD with AB Sciex’s SWATH-Mass Spectrometry – calling the
resulting method “PCT-SWATH”. This protocol can yield analytical results within 12 hours from the start of processing tissue. Although Drs.
Aebersold and Guo developed protocols for the combination of PCT-HD with SWATH-MS, the PCT-HD System is not limited to any specific
mass spectrometer or method of data analysis. Subsequently, the PCT-HD System can provide most researchers with unprecedented speed and
reproducibility for biomarker discovery.
Cell Disruption Instrumentation
We are also the exclusive distributor throughout all of the Americas for the Constant Systems cell disruption equipment, parts, and
consumables. Constant Systems, Ltd (“CS”), a British company located about 90 minutes northwest of London, England, has been providing
niche biomedical equipment, related consumable products, and services to a global client base since 1989. CS designs, develops, and
manufactures high pressure cell disruption equipment required by life sciences laboratories worldwide, particularly disruption systems for the
extraction of proteins. The CS equipment provides a constant and controlled cell disruptive environment, giving the user superior, constant,
and reproducible results whatever the application. CS has nearly 900 units installed in over 40 countries worldwide. The CS cell disruption
equipment has proven performance in the extraction of cellular components, such as protein from yeast, bacteria, mammalian cells, and other
sample types.
The CS pressure-based cell disruption equipment and the PBI PCT instrumentation complement each other in several important
ways. While both the CS and PBI technologies are based on high pressure, each product line has fundamental scientific capabilities that the
other does not offer. PBI’s PCT Platform uses certain patented pressure mechanisms to achieve small-scale, molecular level effects. CS’s
technology uses different, proprietary pressure mechanisms for larger-scale, non-molecular level processing. In a number of routine laboratory
applications, such as protein extraction, both effects can be critical to success. Therefore, for protein extraction and a number of other
important scientific applications, we believe laboratories will benefit by using the CS and PBI products, either separately or together.
Baracycler Consumable Products
PULSE Tubes (FT500) – The FT500 PULSE Tube is a specially-designed, plastic, single-use, processing container with two chambers
separated by a small disk with small holes. This small disk is referred to as a Lysis Disk. PULSE Tubes transmit the power of PCT from the
Barocycler instrument to the sample. In sample extraction, the specimen is placed on the Lysis Disk. Buffers are added to the PULSE tube
and the PULSE Tube is capped and placed in the pressure chamber of the Barocycler instrument. The pressure chamber fluid then is added
and pressurization begins. As pressure increases, a small moveable piston pushes the specimen from the top (sample) chamber, through the
Lysis Disk and into the bottom (fluid retention) chamber. When pressure is released, the sample, which is now partially homogenized, is
pulled back through the Lysis Disk by the receding ram. The combination of physical passage through the Lysis Disk, rapid pressure changes
and other biophysical mechanisms related to cycled pressure break up the cellular structures of the specimen to quickly and efficiently release
nucleic acids, proteins, lipids and small molecules.
Non-Disk PULSE Tubes (FT500-ND) – The FT500-ND PULSE Tube is a specially-designed, plastic, single-use, processing container
with one chamber separated by a small disk with small holes. The FT500-ND is similar to the FT500 in look and feel, except there is no Lysis
Disk separating the body of the processing container into two chambers, as in the FT500. The design change was based on market demand for
a PCT consumable for the rapid and reproducible processing of solutions and suspensions that do not require partial homogenization by
passage through a Lysis Disk and for a consumable that could accept smaller sample volumes. The FT500-ND offers variable sample volumes
with a range five times that of the existing FT500.
ProteoSolve - SB – (ProteoSolve for Systems Biology) is a PCT-dependent method for the simultaneous extraction, isolation and
fractionation of nucleic acids (DNA and RNA), proteins and lipids from animal and plant samples routinely used in laboratory research. This
patent-pending kit contains proprietary reagents, consumable processing containers (PULSE Tubes) and instructions for use. It is intended to
be used with our patented PCT Sample Preparation System. The kit is based on an approach to a "systems biology" sample preparation
method that was first unveiled during early 2008 in collaboration with Dr. Alexander Ivanov, who was then with the Harvard School of Public
Health.
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ProteoSolve - CE – (ProteoSolve for Conventional Extraction) is a PCT-dependent kit for the extraction of proteins from a variety of
samples using optimized detergent-based reagent system compatible with two-dimensional electrophoresis or two-dimensional
chromatographic separation for proteomic analysis. The kit contains the reagents and instructions necessary for the extraction of either
denatured or non-denatured proteins, which can then be used for the analysis of protein structure and function.
Mitochondria Isolation Kits – These kits contain the chemical ingredients necessary for a scientist to extract mitochondria from skeletal
muscle and lung tissue for subsequent analysis. Mitochondria play a major role in generating the energy required to power most cell processes
and are involved in other important cell functions. Mitochondria have been implicated in several human diseases, including heart disease,
stroke, Parkinson's disease, cancer and other mitochondrial diseases.
Micro-Pestle (μPestles) - PCT μPestles, in conjunction with PCT MicroTubes, are designed to enhance the extraction of protein, DNA,
RNA and small molecules from minute amounts (0.5 – 3.0 mg) of solid tissue in extraction reagent volumes as low as 20-30 μL. PCT
MicroTubes and PCT μPestles use Pressure Cycling Technology (PCT) to effectively disrupt soft tissues and lyse their cells. Under very high
hydrostatic pressure, air is fully dissolved into water and many materials, like the plastics we use to manufacture our consumable processing
tubes, contract significantly. As a result of these effects, the tissue sample trapped between the MicroTube end and the μPestles tip is crushed
on every pressure cycle. This mechanical action, combined with the extraction ability of the buffer under high pressure, result in effective
homogenization and extraction.
PCT μPestles and PCT MicroTubes, together with a PBI Barocycler, comprise the PCT Micro-Pestle System, which provides a faster,
safer, and more efficient means of extraction from extremely small amounts of solid samples such as soft animal tissues or biopsies. The PCT
μPestle System can be used in any PBI Barocycler.
PCT μPestles are made from Polytetrafluoroethylene (PTFE), a synthetic fluoropolymer of tetrafluoroethylene, also known as Teflon (by
DuPont Co). PTFE is practically inert; the only chemicals known to affect it are certain alkali metals and most highly reactive fluorinating
agents.
We believe our development of these products has helped, and will continue to help, drive the adoption of PCT within the life sciences
market.
Company Services
Government Grants and Contracts
We view federal agency grants to be an important part of our business plan. These types of grants allow us to bill the federal agency for
work that we are planning to perform as part of the development and commercialization of our technology. We generally start by submitting
initial grant requests that are in response to requests for proposals (“RFPs”) from the federal government through their Small Business
Innovation Research (“SBIR”) program. Initial (“SBIR Phase I”) grants are meant to fund approved research projects for six months, and
generally have budgets of approximately $100,000 to $150,000. Because our work in SBIR Phase I grants has been successful, we have
applied, and may in the future apply for larger National Institutes of Health (“NIH”) SBIR Phase II grants. Such larger grants are typically for
a two-year period and can offer as much as $1,000,000 to support significant research projects in areas we would otherwise expect to support
with internal funds should SBIR Phase II grants not be awarded. To date, we have been awarded four NIH SBIR Phase I grants and three
SBIR Phase II grants. The data on three of the NIH SBIR Phase I grants were the basis for the submission, and subsequent award, of the
three NIH SBIR Phase II grants awarded to us. One was in the approximate amount of $850,000 in August 2008, the second was in the
approximate amount of $850,000 in September 2011, and the third award was in the approximate amount of $1,020,000 awarded in November
2014. All three of the NIH SBIR Phase I grants and the August 2008 and September 2011, NIH SBIR Phase II grants have been completed.
The 2008 SBIR Phase II grant (2R44GM079059) was awarded to us by the NIH for work in the area of using PCT to extract protein
biomarkers, sub-cellular molecular complexes, and organelles, with the expectation that these studies might ultimately lead to the release of a
new, commercially available PCT-based system, with validated protocols, end-user kits, and other consumables intended for the extraction of
clinically important protein biomarkers, sub-cellular molecular complexes, and organelles from human and animal tissues. The 2011 SBIR II
contract (W81XWH-10-C-0-175) was awarded to us by the U.S. Army for the development of a universal method for the inactivation,
extraction, and enrichment of pathogens in diagnostic samples, including arthropod hosts of military importance. The work covered by this
grant was significant in helping us develop the recently released Barozyme HT48 High Throughput System. The 2014 SBIR Phase II grant
(2R44HG007136) was awarded to us by the National Human Genome Research Institute of the National Institutes of Health ("NIH").
Entitled "High Pressure Sample Preparation Instrumentation for DNA Sequencing", this grant will help fund the development of an
automated, high-throughput, high pressure system (instrument and consumables), to enable significantly better control of DNA fragmentation -
a critical step in the preparation of samples for Next Generation Sequencing platforms. This system will be based on significant technological
advancements over the classic hydrodynamic DNA shearing approach that has been successfully and widely used in the field of DNA
sequencing for many years.
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Extended Service Contracts
We offer extended service contracts on our laboratory instrumentation to all of our customers. These service contracts allow a customer
who purchases a Barocycler instrument to receive on-site scheduled preventative maintenance, on-site repair and replacement of all worn or
defective component parts, and telephone support, all at no incremental cost for the life of the service contract. We offer one-year and four-
year extended service contracts to customers who purchase Barocycler instruments.
Other Applications of Pressure Cycling Technology
PCT is an enabling, platform technology based on a physical process that had not previously been used to control bio-molecular
interactions. During its early development, under the legacy business of Boston Biomedica, Inc., our scientists were researching and
developing applications of pressure cycling technology in many areas of the life sciences, including genomic, proteomic and small molecule
sample preparation. The data generated during these early years, combined with the data generated since we began focusing on PCT
operations in February 2005, form the basis of knowledge that we believe will allow us to successfully commercialize PCT both within and
outside of the sample preparation market.
Our research and development efforts have shown that, in addition to genomic, proteomic and small molecule sample preparation, PCT is
potentially beneficial in a number of other areas of the life sciences, including pathogen inactivation, protein purification, control of chemical
(particularly enzymatic) reactions, and immunodiagnostics. Other applications in the sample preparation market include forensics and
histology, as we discuss above. Our pursuit of these markets, however, depends on a number of factors, including our success in
commercializing PCT in the area of sample preparation, our judgment regarding the investment required to be successful in these areas, the
value of these markets to our Company, and the availability of sufficient financial resources. Below is a brief explanation of each of these
additional potential applications and a short description of why we believe PCT can be used to improve scientific studies in these areas.
Pathogen Inactivation
Biological products manufactured for human use, such as blood, vaccines and drugs, are put through rigorous processing protocols in an
effort to minimize the potential of that product to transmit disease. These protocols may include methods to remove infectious materials such
as pre-processing testing, filtration or chromatography, or methods to inactivate infectious materials that are not captured in the removal steps
such as pasteurization, irradiation and solvent detergent inactivation. Notwithstanding current diligence in both the removal and inactivation
steps, significant concern remains that some bacteria and viruses capable of transmitting infection to recipients may not be removed or
inactivated with current procedures. In addition, some removal and inactivation methods may not be useful because of cost, safety, ease-of-
use or other practical concerns. To that end, we believe that a new inactivation method is needed that can safely, rapidly and inexpensively
inactivate pathogens in blood, vaccines and drugs without the need for chemical or other potentially toxic additives. We believe we have
successfully generated proof-of-concept that PCT can satisfy this need. We believe that compared with current procedures, a process that uses
PCT has the potential to increase safety and yield, lower cost and decrease the potential side effects of current methods. We have been issued
U.S., European, and Japanese patents for this PCT-dependent inactivation technology.
Protein Purification
Many vaccines and drugs are comprised of proteins. These proteins need to be purified from complex mixtures as part of the
manufacturing process. Current purification techniques often result in the loss of a significant amount of the protein. Therefore, any method
that could increase the amount of protein being recovered in the purification step, could subsequently lead to a reduction in cost to the
manufacturer. We believe we have successfully generated proof-of-concept that PCT can satisfy this need. We believe that compared with
current purification procedures, a process that uses PCT has the potential to increase protein recovery, increase the quality of the product, and
lower production costs. We have been issued U.S. and European patents in this area.
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Control of Chemical (Particularly Enzymatic) Reactions
Chemical reactions encompass many important interactions in nature. Methods used to control chemical reactions could have a positive
effect on the quality, speed, and overall result of the reaction. The control and detection of chemical reactions is particularly useful in the
biotechnology field for synthesizing and characterizing such molecules as nucleic acids and polypeptides. We believe that PCT offers distinct
advantages in controlling chemical reactions over current methods, since PCT can provide precise, automated control over the timing and
synchronization of chemical reactions, particularly enzymatic reactions. We have been issued U.S. and European patents in this area.
Immunodiagnostics
Many tests used in the clinical laboratory today are based on the formation of a complex between two proteins, such as an antigen and an
antibody. Such “immunodiagnostic” methods are used for the detection of infectious agents such as the human immunodeficiency virus
(“HIV”), hepatitis viruses, West Nile virus, and others, as well as for endocrine, drug testing and cancer diagnostics. We have generated
proof-of-concept that PCT may be used to control biomolecular interactions between proteins, such as antigens and antibodies. We believe
this capability may provide a greater degree of sensitivity and quantitative accuracy in immunodiagnostic testing than that offered by methods
that are available today. We have been issued U.S. and European patents in this area.
Customers
Our customers include researchers at academic laboratories, government agencies, biotechnology companies, pharmaceutical companies
and other life science institutions in the United States. Our customers also include 11 foreign distribution partners. Our goal is to continue our
market penetration in these target groups and releasing products in our publicized product pipeline. We also believe that there is a significant
opportunity to sell and/or lease additional Barocycler instrumentation to additional laboratories at current customer institutions.
If we are successful in commercializing PCT in applications beyond our current focus area of genomic, proteomic, and small molecule
sample preparation and if we are successful in our attempts to attract additional capital, our potential customer base could expand to include
hospitals, reference laboratories, blood banks and transfusion centers, plasma collection centers, pharmaceutical manufacturing plants and
other sites involved in each specific application. If we are successful in forensics, our potential customers could be laboratories, military and
other government agencies. If we are successful in histology, our potential customers could be pharmaceutical companies, hospitals, and
laboratories focused on drug discovery or correlation of disease states.
Competition
We compete with companies that have existing technologies for the extraction of nucleic acids, proteins and small molecules from cells
and tissues, including methods such as mortar and pestle grinding, sonication, rotor-stator homogenization, French Press, bead beating, freezer
milling, enzymatic digestion and chemical dissolution. We believe that there are a number of significant issues related to the use of these
methods, including: complexity, sample containment, cross-contamination, shearing of biomolecules of interest, and limited applicability to
different sample types, ease-of-use, reproducibility, and cost. We believe that our PCT Sample Preparation System offers a number of
significant advantages over these methods, including:
● labor reduction
● temperature control
● precision
● reproducibility
● versatility
● efficiency
● simplicity
● safety
To be competitive in the industry, we believe we must be able to clearly and conclusively demonstrate to potential customers that our
products provide these improved performance capabilities. We strongly believe that our PCT Sample Preparation System is a novel and
enabling system for genomic, proteomic, and small molecule sample preparation. As such, many users of current manual techniques will need
to be willing to challenge their existing methods of sample preparation and invest time to evaluate a method that could change their overall
workflow in the sample preparation process, prior to adopting our technology.
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Further, we are aware that the cost of the PCT Sample Preparation System may be greater than the cost of many of the other techniques
currently employed. Consequently we are focusing our sales efforts on those product attributes that we believe will be most important and
appealing to potential customers, namely versatility, reproducibility, quality and safety.
Manufacturing and Supply
BIT Group USA, formerly Source Scientific, LLC, currently provides all of the manufacturing and assembly services for our Barocycler
NEP2320 and Barocycler NEP3229 instrumentation products under an informal, unwritten understanding. We currently manufacture and
assemble the Barocycler HUB440, the Shredder SG3, and the MicroTubes at our South Easton facility. We plan to continue to utilize BIT
Group USA as our primary assembler and contract manufacturer of our current, and future, Barocycler NEP 2320 and 3229
instruments. Until we develop a broader network of manufacturers and subcontractors, obtaining alternative sources of supply or
manufacturing services could involve significant delays and other costs and challenges, and may not be available to us on reasonable terms, if
at all. The failure of a supplier or contract manufacturer to provide sufficient quantities, acceptable quality and timely products at an
acceptable price, or an interruption of supplies from such a supplier could harm our business and prospects.
Research and Development
Our research and development activities are split into two functional areas, applications and engineering.
1. Applications Research and Development: Our highly educated and trained staff has years of experience in molecular and cellular
biology, virology, and proteomics. Our team of scientists focuses on the development of our PCT Sample Preparation System and
further commercialization of PCT-dependent genomic, proteomic, and small molecule sample preparation methods. Dr. Alexander
Lazarev, our vice president of Research & Development, meets regularly with our sales, marketing, and engineering staff to discuss
market needs and trends. Our applications research and development team is responsible for the technical review of all scientific
collaborations, for the support of our marketing and sales departments through the generation of internal data in a number of areas
of market interest, and in the development of commercially-viable PCT-dependent products.
2. Engineering Research and Development: Our engineering research and development team is focused on the design and
development of new and improved instrumentation and consumable products to support the commercialization of PCT. Our
engineering department is led by Dr. Edmund Ting, our senior vice president of engineering. The primary focus of our engineering
group is to ensure seamless production processes, perform installations and field service, and work with our application scientists to
complete the development of a high throughput sample processing system for the mass spectrometry market.
Product Pipeline
The following instruments are in our research and development pipeline:
● Barocycler FFPE Protein Extraction Instrument System - A PCT-based system offering the enhanced extraction of proteins from
formalin-fixed, paraffin-embedded (“FFPE”) samples using a modified Barocycler instrument that combines the advantages of
pressure cycling, high temperature and certain reagents.
● XstreamPCT™ HPLC Digestion Module - For automated, in-line, on-demand PCT-enhanced protein digestion; the first module in
PBI's PCT-based HPLC platform.
Sales and Marketing
Our sales and marketing efforts are centered on using the independent data developed and disseminated by our collaboration partners to
help drive the installed base of our PCT Sample Preparation System. The development of scientific data by our partners and our internal
researchers provides our sales and marketing staff with additional tools that are essential in selling a new technology such as PCT.
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Sales
Direct US Sales Force
Our domestic sales force currently consists of one full-time sales director and one part-time salesperson. We believe that hiring seasoned
sales professionals with significant industry experience will allow us to penetrate the market more effectively than with a small, focused sales
force. We may increase the number of sales professionals if our financial resources permit and if we believe that doing so will accelerate our
commercialization efforts.
Foreign Distributor Network
Currently, we have 11 distribution arrangements covering 22 countries in Europe, Asia and Australia. In June 2008, we entered into a
distribution agreement with Veritas Corporation (“Veritas”) of Tokyo, Japan pursuant to which we granted Veritas exclusive distribution rights
to all of our products in Japan. This agreement extends through December 31, 2015. In October 2011, we entered into a distribution agreement
with IUL Instruments GmbH (“IUL”) of Germany pursuant to which we granted IUL exclusive distribution rights to all of our products in
Germany and Switzerland through March 31, 2014. IUL currently distributes PBI products through our agreement with Constant Systems. In
November 2011, we entered into a distributor agreement with Oroboros Instruments Corp. (“Oroboros”) of Austria pursuant to which we
granted Oroboros non-exclusive world-wide distribution rights to the PBI Shredder SG3 System and related products through December 31,
2015. In March and July 2012, we entered into a distribution agreement with six companies pursuant to which we granted non-exclusive
distribution rights to certain PCT products in six European and Asian countries and Australia through December 2013. Currently all six
companies distribute PBI products through our agreement with Constant Systems. In October 2012, we entered into a supply agreement with
Cole Parmer Corporation pursuant to which we granted Cole Parmer non-exclusive, worldwide distribution rights to our PBI Shredder SG3
System and related consumables through December 2014. This supply agreement has now expired. In November 2012, we entered into a
distribution agreement with UK-based Constant Systems (“CS”), pursuant to which we granted Constant Systems non-exclusive distribution
rights to certain of our PCT SPS product line in 12 European and Asian countries. This Agreement terminates on May 31, 2015. In June 2013,
CS and PBI signed an expanded Distribution Agreement that made PBI the exclusive distributor of CS products throughout all of the
Americas; this Agreement also terminates on May 31, 2015. We expect these agreements will be extended for a minimum of two additional
years.
Marketing and Sales
Our marketing and sales function is led by Dr. Nathan Lawrence, our vice president of Marketing and Sales. Dr. Lawrence oversees and
directs marketing and sales activities such as trade show attendance and sponsorship, on-line advertising, website maintenance and
improvement, search engine optimization, creation and dissemination of a PCT newsletter, market research initiatives, the arrangement of on-
location seminars, lectures, and demonstrations of PCT capabilities, and the supervision of our two-person sales force. Dr. Lawrence is also
responsible for the overall coordination of our collaboration programs, from initial set-up, research plan design, and training, service, and data
analysis. Some of these responsibilities are shared with other PBI departments such as Research and Development, but marketing and sales
drives the collaborative process. Dr. Lawrence is also responsible for the continued coordination and support of our foreign and domestic
distribution partners.
In January and May 2012, we entered into co-marketing/selling and research and development agreements with Digilab, a provider of
products for life sciences, analytical chemistry and diagnostic markets, and LEAP Technologies, a provider of automation equipment for the
genomic and proteomic industries. Under these agreements, we are co-marketing and co-selling our respective product lines worldwide,
including in industry publications, at scientific meetings, on each company’s website, through common collaborator studies, at key industry
trade shows, and in visits to customer sites. We are also exploring ways to co-develop new instrumentation, accessories/modules for existing
instrumentation, and consumables that combine the robotics and high throughput capabilities of these companies’ products with the extraction,
protein digestion, and other advantages of our PCT platform.
Intellectual Property
We believe that protection of our patents and other intellectual property is essential to our business. Subject to the availability of sufficient
financial resources, our practice is to file patent applications to protect technology, inventions, and improvements to inventions that are
important to our business development. We also rely on trade secrets, know-how, and technological innovations to develop and maintain our
potential competitive position.
To date, we have been granted 14 United States and 10 foreign patents. Our issued patents expire between 2015 and 2027. Our failure to
obtain and maintain adequate patent protection may adversely affect our ability to enter into, or affect the terms of, any arrangement for the
marketing or sale of any of our PCT products. It may also allow our competitors to duplicate our products without our permission and without
compensation.
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License Agreements Relating to Pressure Cycling Technology
BioMolecular Assays, Inc.
In 1996, we acquired our initial equity interest in BioSeq, Inc., which at the time was developing our original pressure cycling technology.
BioSeq, Inc. acquired its pressure cycling technology from BioMolecular Assays, Inc. under a technology transfer and patent assignment
agreement. In 1998, we purchased all of the remaining outstanding capital stock of BioSeq, Inc., and at such time, the technology transfer and
patent assignment agreement was amended to require us to pay BioMolecular Assays, Inc., a 5% royalty on our sales of products or services
that incorporate or utilize the original pressure cycling technology that BioSeq, Inc. acquired from BioMolecular Assays, Inc. We are also
required to pay BioMolecular Assays, Inc. 5% of the proceeds from any sale, transfer or license of all or any portion of the original pressure
cycling technology. These payment obligations terminate in 2016. During the years ended December 31, 2014 and 2013, we incurred
approximately $31,835 and $23,785, respectively, in royalty expense associated with our obligation to BioMolecular Assays, Inc.
In connection with our acquisition of BioSeq, Inc., we licensed certain limited rights to the original pressure cycling technology back to
BioMolecular Assays, Inc. This license is non-exclusive and limits the use of the original pressure cycling technology by BioMolecular
Assays, Inc. solely for molecular applications in scientific research and development and in scientific plant research and development.
BioMolecular Assays, Inc. is required to pay us a royalty equal to 20% of any license or other fees and royalties, but not including research
support and similar payments, it receives in connection with any sale, assignment, license or other transfer of any rights granted to
BioMolecular Assays, Inc. under the license. BioMolecular Assays, Inc. must pay us these royalties until the expiration of the patents held by
BioSeq, Inc. in 1998, which we anticipate will be 2016. We have not received any royalty payments from BioMolecular Assays, Inc. under
this license.
Battelle Memorial Institute
In December 2008, we entered into an exclusive patent license agreement with the Battelle Memorial Institute ("Battelle"). The licensed
technology is the subject of a patent application filed by Battelle in 2008 and relates to a method and a system for improving the analysis of
protein samples, including through an automated system utilizing pressure and a pre-selected agent to obtain a digested sample in a
significantly shorter period of time than current methods, while maintaining the integrity of the sample throughout the preparatory process. In
addition to royalty payments on net sales on “licensed products,” we are obligated to make minimum royalty payments for each year that we
retain the rights outlined in the patent license agreement and we are required to have our first commercial sale of the licensed products within
one year following the issuance of the patent covered by the licensed technology. Based on our first commercial sales during 2014 in countries
covered by the Battelle Royalty Agreement, we accrued a royalty of approximately $2,900 to Battelle. Our obligation for 2013 was a
minimum royalty payment of $4,025.
Regulation
Many of our activities are subject to regulation by governmental authorities within the United States and similar bodies outside of the
United States. The regulatory authorities may govern the collection, testing, manufacturing, safety, efficacy, labeling, storage, record keeping,
transportation, approval, advertising, and promotion of our products, as well as the training of our employees.
All of our commercialization efforts to date are focused in the area of genomic, proteomic and small molecule sample preparation. We do
not believe that our current Barocycler products used in sample preparation are considered “medical devices” under the United States Food,
Drug and Cosmetic Act (the “FDA Act”) and we do not believe that we are subject to the law’s general control provisions that include
requirements for registration, listing of devices, quality regulations, labeling and prohibitions against misbranding and adulteration. We also
do not believe that we are subject to regulatory inspection and scrutiny. If, however, we are successful in commercializing PCT in applications
beyond our current focus area of genomic, proteomic and small molecule sample preparation, such as protein purification, pathogen
inactivation and immunodiagnostics, our products may be considered “medical devices” under the FDA Act, at which point we would be
subject to the law’s general control provisions and regulation by the U.S. Food and Drug Administration (the “FDA”) that include
requirements for registration listing of devices, quality regulations, labeling, and prohibitions against misbranding and adulteration. The
process of obtaining approval to market these devices in the other potential applications of PCT would be costly and time consuming and
could prohibit us from pursuing such markets.
We may also become subject to the European Pressure Equipment Directive, which requires certain pressure equipment meet certain
quality and safety standards. We do not believe that we are currently subject to this directive because our Barocycler instruments are below the
threshold documented in the text of the directive. If our interpretation were to be challenged, we could incur significant costs defending the
challenge, and we could face production and selling delays, all of which could harm our business.
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We self-certified that our Barocycler instrumentation was electromagnetically compatible, or “CE” compliant, which means that our
Barocycler instruments meet the essential requirements of the relevant European health, safety and environmental protection legislation. In
order to maintain our CE Marking, a requirement to sell equipment in many countries of the European Union, we are obligated to uphold
certain safety and quality standards.
Employees
At December 31, 2014, we had ten (10) full-time employees and five (5) part-time employees. All employees enter into confidentiality
agreements intended to protect our proprietary information. We believe that our relations with our employees are good. None of our
employees are represented by a labor union. Our performance depends on our ability to attract and retain qualified professional, scientific and
technical staff. The level of competition among employers for skilled personnel is high. Subject to our limited financial resources, we attempt
to maintain employee benefit plans to enhance employee morale, professional commitment and work productivity and provide an incentive for
employees to remain with us.
ITEM 1A RISK FACTORS.
This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, such as statements of our
objectives, expectations and intentions. The cautionary statements made in this Annual Report on Form 10-K should be read as applicable to
all forward-looking statements wherever they appear in this report. Our actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this Annual
Report on Form 10-K.
As of March 30, 2015, we had available cash of approximately $371,717. We require additional capital to fund our operations and cannot
ensure that additional capital will be available on acceptable terms or at all.
We have experienced negative cash flows from operations from our pressure cycling technology business since we commenced our
pressure cycling technology operations. As of March 30, 2015, we had available cash of approximately $371,717 which, based on current
projections, which include additional fund raising, will be sufficient to fund operations for the foreseeable future. We need substantial
additional capital to fund our operations.
We have received an opinion from our independent registered public accounting firm expressing substantial doubt regarding our ability
to continue as a going concern.
The audit report issued by our independent registered public accounting firm on our audited consolidated financial statements for the
fiscal year ended December 31, 2014 contains an explanatory paragraph regarding our ability to continue as a going concern. The audit report
states that our auditing firm has substantial doubt in our ability to continue as a going concern due to the risk that we may not have sufficient
cash and liquid assets at December 31, 2014 to cover our operating and capital requirements for the next twelve-month period; and if sufficient
cash cannot be obtained, we would have to substantially alter, or possibly even discontinue, operations. The accompanying consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Management has developed a plan to continue operations. This plan includes continued control of expenses and obtaining equity or debt
financing. Although we have successfully completed equity financings and reduced expenses in the past, we cannot assure you that our plans
to address these matters in the future will be successful.
The factors described above could adversely affect our ability to obtain additional financing on favorable terms, if at all, and may cause
investors to have reservations about our long-term prospects, and may adversely affect our relationships with customers. There can be no
assurance that our auditing firm will not issue the same opinion in the future. If we cannot successfully continue as a going concern, our
stockholders may lose their entire investment in us.
Our revenue is dependent upon acceptance of our products by the market. The failure of such acceptance will cause us to curtail or cease
operations.
Our revenue comes from the sale of our products. As a result, we will continue to incur operating losses until such time as sales of our
products reach a mature level and we are able to generate sufficient revenue from the sale of our products to meet our operating expenses.
There can be no assurance that customers will adopt our technology and products, or that businesses and prospective customers will agree to
pay for our products. In the event that we are not able to significantly increase the number of customers that purchase our products, or if we
are unable to charge the necessary prices, our financial condition and results of operations will be materially and adversely affected.
15
Our business could be adversely affected if we fail to implement and maintain effective disclosure controls and procedures and internal
control over financial reporting.
We concluded that as of December 31, 2014, our disclosure controls and procedures and our internal control over financial reporting were
not effective. As described in Item 9A of this Annual Report on Form 10-K, we have determined that we have limited resources for adequate
personnel to prepare and file reports under the Securities Exchange Act of 1934 within the required time periods and that material weaknesses
in our internal control over financial reporting exist relating to our accounting for complex equity transactions. If we are unable to implement
and maintain effective disclosure controls and procedures and remediate the material weaknesses in a timely manner, or if we identify other
material weaknesses in the future, our ability to produce accurate and timely financial statements and public reports could be impaired, which
could adversely affect our business and financial condition. We identified a lack of sufficient segregation of duties. Specifically, this material
weakness is such that the design over these areas relies primarily on detective controls and could be strengthened by adding preventive
controls to properly safeguard assets. In addition, investors may lose confidence in our reported information and the market price of our
common stock may decline.
We will need a greater amount of additional capital than we currently expect to need if we experience unforeseen costs or expenses,
unanticipated liabilities or delays in implementing our business plan, developing our products and achieving commercial sales.
We need substantial capital to implement our sales distribution strategy for our current products and to develop and commercialize future
products using our pressure cycling technology products and services in the sample preparation area, as well as for applications in other areas
of life sciences. Our capital requirements will depend on many factors, including but not limited to:
● the problems, delays, expenses, and complications frequently encountered by early-stage companies;
● market acceptance of our pressure cycling technology products and services for sample preparation;
● the success of our sales and marketing programs; and
● changes in economic, regulatory or competitive conditions in the markets we intend to serve.
To satisfy our potential capital requirements to cover the cost of implementing our sales distribution strategy for our current products and
services and to develop and commercialize future products and services using our pressure cycling technology relating to sample preparation
and other life science applications, we need to raise additional funds in the public or private capital markets. We may seek to raise any
necessary additional funds through the issuance of warrants, equity or debt financings or executing collaborative arrangements with corporate
partners or other sources, which may be dilutive to existing stockholders or otherwise have a material effect on our current or future business
prospects. Additional financing may not be available to us on a timely basis, if at all, or on terms acceptable to us. If adequate funds are not
available or if we fail to obtain acceptable additional financing, we may be required to:
● severely limit or cease our operations or otherwise reduce planned expenditures and forego other business opportunities, which
could harm our business;
● obtain financing with terms that may have the effect of substantially diluting or adversely affecting the holdings or the rights of the
holders of our capital stock; or
● obtain funds through arrangements with future collaboration partners or others that may require us to relinquish rights to some or all
of our technologies or products.
Our actual results and performance, including our ability to raise additional capital, may be adversely affected by current economic
conditions.
Our actual results and performance could be adversely affected by the current economic conditions in the global economy, which
continue to pose a risk to the overall demand for our products from our customers who may elect to defer or cancel purchases of, or decide not
to purchase, our products in response to continuing tightness in the credit markets, negative financial news and general uncertainty in the
economy. In addition, our ability to obtain additional financing, on acceptable terms, if at all, may be adversely affected by the uncertainty in
the current economic climate.
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We have a history of operating losses, anticipate future losses and may never be profitable.
We have experienced significant operating losses in each period since we began investing resources in PCT and CP. These losses have
resulted principally from research and development, sales and marketing, and general and administrative expenses associated with the
development of our PCT business. During the year ended December 31, 2014, we recorded a net loss applicable to common shareholders of
$6,251,726, or ($0.44) per share, as compared with $5,247,449, or ($0.44) per share, of the corresponding period in 2013. We expect to
continue to incur operating losses until sales of our PCT and CP products increase substantially. We cannot be certain when, if ever, we will
become profitable. Even if we were to become profitable, we might not be able to sustain such profitability on a quarterly or annual basis.
Our financial results depend on revenues from our pressure cycling technology products and services, and from government grants.
We currently rely on revenues from our PCT and CP technology products and services in the sample preparation area and from revenues
derived from grants awarded to us by governmental agencies, such as the National Institutes of Health. We have been unable to achieve
market acceptance of our product offerings to the extent necessary to achieve significant revenue. Competition for government grants is very
intense, and we can provide no assurance that we will continue to be awarded grants in the future. If we are unable to increase revenues from
sales of our pressure cycling technology products and services and government grants, our business will fail.
We may be unable to obtain market acceptance of our pressure cycling technology products and services.
Many of our initial sales of our pressure cycling technology products and services have been to our collaborators, following their use of
our products in studies undertaken in sample preparation for genomics, proteomics and small molecules studies. Later sales have been to key
opinion leaders. Our technology requires scientists and researchers to adopt a method of sample extraction that is different than existing
techniques. Our PCT sample preparation system is also more costly than existing techniques. Our ability to obtain market acceptance will
depend, in part, on our ability to demonstrate to our potential customers that the benefits and advantages of our technology outweigh the
increased cost of our technology compared with existing methods of sample extraction. If we are unable to demonstrate the benefits and
advantages of our products and technology as compared with existing technologies, we will not gain market acceptance and our business will
fail.
Our business may be harmed if we encounter problems, delays, expenses, and complications that often affect companies that have not
achieved significant market acceptance.
Our pressure cycling technology business continues to face challenges in achieving market acceptance. If we encounter problems, delays,
expenses and complications, many of which may be beyond our control or may harm our business or prospects. These include:
● availability of adequate financing;
● unanticipated problems and costs relating to the development, testing, production, marketing, and sale of our products;
● delays and costs associated with our ability to attract and retain key personnel; and
● competition.
The sales cycle of our pressure cycling technology products is lengthy. We have incurred and may continue to incur significant expenses
and we may not generate any significant revenue related to those products.
Many of our current and potential customers have required between three and six months or more to test and evaluate our pressure cycling
technology products. This increases the possibility that a customer may decide to cancel its order or otherwise change its plans, which could
reduce or eliminate our sales to that potential customer. As a result of this lengthy sales cycle, we have incurred and may continue to incur
significant research and development, selling and marketing, and general and administrative expense related to customers from whom we have
not yet generated any revenue from our products, and from whom we may never generate the anticipated revenue if a customer is not satisfied
with the results of the evaluation of our products or if a customer cancels or changes its plans.
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Our business could be harmed if our products contain undetected errors or defects.
We are continuously developing new and improving our existing, pressure cycling technology products in sample preparation and we
expect to do so in other areas of life sciences depending upon the availability of our resources. Newly introduced products can contain
undetected errors or defects. In addition, these products may not meet their performance specifications under all conditions or for all
applications. If, despite internal testing and testing by our collaborators, any of our products contain errors or defects or fail to meet customer
specifications, then we may be required to enhance or improve those products or technologies. We may not be able to do so on a timely basis,
if at all, and may only be able to do so at considerable expense. In addition, any significant reliability problems could result in adverse
customer reaction, negative publicity or legal claims and could harm our business and prospects.
Our success may depend on our ability to manage growth effectively.
Our failure to manage growth effectively could harm our business and prospects. Given our limited resources and personnel, growth of
our business could place significant strain on our management, information technology systems, sources of manufacturing capacity and other
resources. To properly manage our growth, we may need to hire additional employees and identify new sources of manufacturing capabilities.
Failure to effectively manage our growth could make it difficult to manufacture our products and fill orders, as well as lead to declines in
product quality or increased costs, any of which would adversely impact our business and results of operations.
Our success is substantially dependent on the continued service of our senior management.
Our success is substantially dependent on the continued service of our senior management. We do not have long-term employment
agreements with our key employees. The loss of the services of any of our senior management has made, and could make it more difficult to
successfully operate our business and achieve our business goals. In addition, our failure to retain existing engineering, research and
development and sales personnel could harm our product development capabilities and customer and employee relationships, delay the growth
of sales of our products and could result in the loss of key information, expertise or know-how.
We may not be able to hire or retain the number of qualified personnel, particularly engineering and sales personnel, required for our
business, which would harm the development and sales of our products and limit our ability to grow.
Competition in our industry for senior management, technical, sales, marketing, finance and other key personnel is intense. If we are
unable to retain our existing personnel, or attract and train additional qualified personnel, either because of competition in our industry for
such personnel or because of insufficient financial resources, our growth may be limited. Our success also depends in particular on our ability
to identify, hire, train and retain qualified engineering and sales personnel with experience in design, development and sales of laboratory
equipment.
Our reliance on a single third party for all of our manufacturing, and certain of our engineering, and other related services could harm
our business.
We currently rely on BIT Group USA (“BIT Group”), a third party contract manufacturer, to manufacture our PCT instrumentation,
provide engineering expertise, and manage the majority of our sub-contractor supplier relationships. Because of our dependence on one
manufacturer, our success will depend, in part, on the ability of BIT Group to manufacture our products cost effectively, in sufficient
quantities to meet our customer demand, if and when such demand occurs, and meeting our quality requirements. If BIT Group experiences
manufacturing problems or delays, or if BIT Group decides not to continue to provide us with these services, our business may be harmed.
While we believe other contract manufacturers are available to address our manufacturing and engineering needs, if we find it necessary to
replace BIT Group, there will be a disruption in our business and we would incur additional costs and delays that would harm our business.
Our failure to manage current or future alliances or joint ventures effectively may harm our business.
We have entered into business relationships with 11 distribution partners and one co-marketing partner, and we may enter into additional
alliances, joint ventures or other business relationships to further develop, market and sell our pressure cycling technology product line. We
may not be able to:
● identify appropriate candidates for alliances, joint ventures or other business relationships;
● assure that any candidate for an alliance, joint venture or business relationship will provide us with the support anticipated;
● successfully negotiate an alliance, joint venture or business relationship on terms that are advantageous to us; or
● successfully manage any alliance or joint venture.
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Furthermore, any alliance, joint venture or other business relationship may divert management time and resources. Entering into a
disadvantageous alliance, joint venture or business relationship, failing to manage an alliance, joint venture or business relationship
effectively, or failing to comply with any obligations in connection therewith, could harm our business and prospects.
We may not be successful in growing our international sales.
We cannot guarantee that we will successfully develop our international sales channels to enable us to generate significant revenue from
international sales. We currently have 11 international distribution agreements that cover 22 countries in Europe, Asia and Australia. We have
generated limited sales to date from international sales and cannot guarantee that we will be able to increase our sales. As we expand, our
international operations may be subject to numerous risks and challenges, including:
● multiple, conflicting and changing governmental laws and regulations, including those that regulate high pressure equipment;
● reduced protection for intellectual property rights in some countries;
● protectionist laws and business practices that favor local companies;
● political and economic changes and disruptions;
● export and import controls;
● tariff regulations; and
● currency fluctuations.
Our operating results are subject to quarterly variation. Our operating results may fluctuate significantly from period to period
depending on a variety of factors, including but not limited to the following:
● our ability to increase our sales of our pressure cycling technology products for sample preparation on a consistent quarterly or
annual basis;
● the lengthy sales cycle for our products;
● the product mix of the Barocycler instruments we install in a given period, and whether the installations are completed pursuant to
sales, rental or lease arrangements, and the average selling prices that we are able to command for our products;
● our ability to manage our costs and expenses;
● our ability to continue our research and development activities without incurring unexpected costs and expenses; and
● our ability to comply with state and federal regulations without incurring unexpected costs and expenses.
Our instrumentation operates at high pressures and may therefore become subject to certain regulation in the European Community.
Regulation of high pressure equipment may limit or hinder our development and sale of future instrumentation.
Our Barocycler instruments operate at high pressures. If our Barocycler instruments exceed certain pressure levels, our products may
become subject to the European Pressure Equipment Directive, which requires certain pressure equipment meet certain quality and safety
standards. We do not believe that we are subject to this directive because our Barocycler instruments are currently below the threshold
documented in the text of the directive. If our interpretation were to be challenged, we could incur significant costs defending the challenge,
and we could face production and selling delays, all of which could harm our business.
We expect that we will be subject to regulation in the United States, such as the Food and Drug Administration, and overseas, if and when
we begin to invest more resources in the development and commercialization of PCT in applications outside of sample preparation for the
research field.
Our current pressure cycling technology products in the area of sample preparation for the research field are not regulated by the FDA.
Applications in which we intend to develop and commercialize pressure cycling technology, such as protein purification, pathogen inactivation
and immunodiagnostics, are expected to require regulatory approvals or clearances from regulatory agencies, such as the FDA, prior to
commercialization, when we expand our commercialization activities outside of the research field. We expect that obtaining these approvals
or clearances will require a significant investment of time and capital resources and there can be no assurance that such investments will
receive approvals or clearances that would allow us to commercialize the technology for these applications.
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If we are unable to protect our patents and other proprietary technology relating to our pressure cycling technology products, our
business will be harmed.
Our ability to further develop and successfully commercialize our products will depend, in part, on our ability to enforce our patents,
preserve our trade secrets, and operate without infringing the proprietary rights of third parties. We currently have 14 United States and 10
foreign patents. The patents expire between 2015 and 2027.
There can be no assurance that (a) any patent applications filed by us will result in issued patents; (b) patent protection will be secured for
any particular technology; (c) any patents that have been or may be issued to us will be valid or enforceable; (d) any patents will provide
meaningful protection to us; (e) others will not be able to design around our patents; and (f) our patents will provide a competitive advantage
or have commercial value. The failure to obtain adequate patent protection would have a material adverse effect on us and may adversely
affect our ability to enter into, or affect the terms of, any arrangement for the marketing or sale of any product.
Our patents may be challenged by others.
We could incur substantial costs in patent proceedings, including interference proceedings before the United States Patent and Trademark
Office, and comparable proceedings before similar agencies in other countries, in connection with any claims that may arise in the future.
These proceedings could result in adverse decisions about the patentability of our inventions and products, as well as about the enforceability,
validity, or scope of protection afforded by the patents.
If we are unable to maintain the confidentiality of our trade secrets and proprietary knowledge, others may develop technology and
products that could prevent the successful commercialization of our products.
We rely on trade secrets and other unpatented proprietary information in our product development activities. To the extent we rely on
trade secrets and unpatented know-how to maintain our competitive technological position, there can be no assurance that others may not
independently develop the same or similar technologies. We seek to protect our trade secrets and proprietary knowledge, in part, through
confidentiality agreements with our employees, consultants, advisors and contractors. These agreements may not be sufficient to effectively
prevent disclosure of our confidential information and may not provide us with an adequate remedy in the event of unauthorized disclosure of
such information. If our employees, consultants, advisors, or contractors develop inventions or processes independently that may be applicable
to our products, disputes may arise about ownership of proprietary rights to those inventions and processes. Such inventions and processes will
not necessarily become our property, but may remain the property of those persons or their employers. Protracted and costly litigation could be
necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret protection, for any reason,
could harm our business.
If we infringe on the intellectual property rights of others, our business may be harmed.
It is possible that the manufacture, use or sale of our pressure cycling technology products or services may infringe patent or other
intellectual property rights of others. We may be unable to avoid infringement of the patent or other intellectual property rights of others and
may be required to seek a license, defend an infringement action, or challenge the validity of the patents or other intellectual property rights in
court. We may be unable to secure a license on terms and conditions acceptable to us, if at all. Also, we may not prevail in any patent or other
intellectual property rights litigation. Patent or other intellectual property rights litigation is costly and time-consuming, and there can be no
assurance that we will have sufficient resources to bring any possible litigation related to such infringement to a successful conclusion. If we
do not obtain a license under such patents or other intellectual property rights, or if we are found liable for infringement, or if we are
unsuccessful in having such patents declared invalid, we may be liable for significant monetary damages, may encounter significant delays in
successfully commercializing and developing our pressure cycling technology products, or may be precluded from participating in the
manufacture, use, or sale of our pressure cycling technology products or services requiring such licenses.
We may be unable to adequately respond to rapid changes in technology and the development of new industry standards.
The introduction of products and services embodying new technology and the emergence of new industry standards may render our
existing pressure cycling technology products and related services obsolete and unmarketable if we are unable to adapt to change. We may be
unable to allocate the funds necessary to improve our current products or introduce new products to address our customers’ needs and respond
to technological change. In the event that other companies develop more technologically advanced products, our competitive position relative
to such companies would be harmed.
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We may not be able to compete successfully with others that are developing or have developed competitive technologies and products.
A number of companies have developed, or are expected to develop, products that compete or will compete with our products. We
compete with companies that have existing technologies for the extraction of nucleic acids, proteins and small molecules from cells and
tissues, including methods such as mortar and pestle, sonication, rotor-stator homogenization, French press, bead beating, freezer milling,
enzymatic digestion, and chemical dissolution.
We are aware that there are additional companies pursuing new technologies with similar goals to the products developed or being
developed by us. Some of the companies with which we now compete, or may compete in the future, have or may have more extensive
research, marketing, and manufacturing capabilities, more experience in genomics and proteomics sample preparation, protein purification,
pathogen inactivation, immunodiagnostics, and DNA sequencing and significantly greater technical, personnel and financial resources than we
do, and may be better positioned to continue to improve their technology to compete in an evolving industry. To compete, we must be able to
demonstrate to potential customers that our products provide improved performance and capabilities. Our failure to compete successfully
could harm our business and prospects.
We will need to increase the size of our organization, and may experience difficulties in managing growth.
We are a small company with minimal employees. We expect to experience a period of expansion in headcount, facilities, infrastructure
and overhead and anticipate that further expansion will be required to address potential growth and market opportunities. Future growth will
impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate new
managers. Our future financial performance and its ability to compete effectively will depend, in part, on its ability to manage any future
growth effectively.
The loss of our key personnel could adversely affect our business. We may not be able to hire and retain qualified personnel to
support our growth and if we are unable to retain or hire such personnel in the future, our ability to improve our products and implement
our business objectives could be adversely affected.
Our success depends to a significant extent upon the efforts of our senior management team and other key personnel. The loss of the
services of such personnel could adversely affect our business and our ability to implement our growth plan. We cannot assure you that the
services of the members of our management team will continue to be available to us, or that we will be able to find a suitable replacement for
any of them. We do not have key man insurance on any members of our management team. If any member of our management team were to
die and we are unable to replace either or both of them for a prolonged period of time, we may be unable to carry out our long term business
plan and our future prospect for growth, and our business, may be harmed.
Also, because of the nature of our business, our success is dependent upon our ability to attract, train, manage and retain sales, marketing and
other qualified personnel. There is substantial competition for qualified personnel, and an inability to recruit or retain qualified personnel may
impact our ability to implement our strategy to grow our business and compete effectively in our industry.
Provisions in our articles of organization and bylaws may discourage or frustrate stockholders’ attempts to remove or replace our current
management.
Our articles of organization and bylaws contain provisions that may make it more difficult or discourage changes in our management that
our stockholders may consider to be favorable. These provisions include:
● a classified board of directors;
● advance notice for stockholder nominations to the board of directors;
● limitations on the ability of stockholders to remove directors; and
● a provision that allows a majority of the directors to fill vacancies on the board of directors.
These provisions could prevent or frustrate attempts to make changes in our management that our stockholders consider to be beneficial
and could limit the price that our stockholders might receive in the future for shares of our common stock.
The costs of compliance with the reporting obligations of the Exchange Act, and with the requirements of the Sarbanes-Oxley Act of 2002
and the Dodd-Frank Wall Street Reform and Consumer Protection Act, may place a strain on our limited resources and our management’s
attention may be diverted from other business concerns.
As a result of the regulatory requirements applicable to public companies, we incur legal, accounting, and other expenses that are
significant in relation to the size of our Company. In addition, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and
Consumer Protection Act, as well as rules subsequently implemented by the SEC and OTC Markets Group, Inc., have required changes in
corporate governance and financial disclosure practices of public companies, some of which are currently applicable to us and others will or
may become applicable to us in the future. These rules and regulations have increased and will continue to increase our legal and financial
compliance costs and may make some activities more time-consuming. These requirements have placed and will continue to place a strain on
our systems and on our management and financial resources.
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Certain of our net deferred tax assets could be substantially limited if we experience an ownership change as defined in the Internal
Revenue Code.
Certain of our net operating losses (“NOLs”) give rise to net deferred tax assets. Our ability to utilize NOLs and to offset our future
taxable income and/or to recover previously paid taxes would be limited if we were to undergo an “ownership change” within the meaning of
Section 382 of the Internal Revenue Code (the “Code”). In general, an “ownership change” occurs whenever the percentage of the stock of a
corporation owned by “5 percent shareholders,” within the meaning of Section 382 of the Code, increases by more than 50 percentage points
over the lowest percentage of the stock of such corporation owned by such “5 percent shareholders” at any time over the preceding three years.
An ownership change under Section 382 of the Code would establish an annual limitation on the amount of NOLs we could utilize to
offset our taxable income in any single taxable year to an amount equal to (i) the product of a specified rate, which is published by the U.S.
Treasury, and the aggregate value of our outstanding stock plus; and (ii) the amount of unutilized limitation from prior years. The application
of these limitations might prevent full utilization of the deferred tax assets attributable to our NOLs. We may have or will have experienced
an ownership change as defined by Section 382 through the sale of equity and, therefore, we will consider whether the sale of equity units will
result in limitations of our net operating losses under Section 382 when we start to generate taxable income. However, whether a change in
ownership occurs in the future is largely outside of our control, and there can be no assurance that such a change will not occur.
Risks Related to Share Ownership:
The holders of our Common Stock could suffer substantial dilution due to our corporate financing practices.
The holders of our common stock could suffer substantial dilution due to our corporate financing practices, which, in the past few years,
have included private placements and a registered direct offering. As of December 31, 2014, we have issued shares of Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E
Convertible Preferred Stock, Series G Convertible Preferred Stock, Series H Convertible Preferred Stock, Series H2 Convertible Preferred
Stock, Series J Convertible Preferred Stock and Series K Convertible Preferred Stock.
As of December 31, 2014, all of the shares of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C
Convertible Preferred Stock, and Series E Convertible Preferred Stock had been converted into shares of common stock. As of December 31,
2014 only shares of Series D Convertible Preferred Stock, Series G Convertible Preferred Stock, Series H Convertible Preferred Stock, Series
H2 Convertible Preferred Stock, Series J Convertible Preferred Stock and Series K Convertible Preferred Stock were outstanding. Further, in
connection with those private placements and the Series D registered direct offering, we issued warrants to purchase common stock. In
addition, as of December 31, 2014, the Company has issued notes convertible into common stock at prices ranging from $0.14 to $0.45 per
common share. If all of the outstanding shares of Series D Convertible Preferred Stock, Series G Convertible Preferred Stock, Series H
Convertible Preferred Stock, Series H2 Convertible Preferred Stock, Series J Convertible Preferred Stock and Series K Convertible Preferred
Stock were converted into shares of common stock and all outstanding options and warrants to purchase shares of common stock were
exercised and all notes were converted, each as of March 30, 2015, an additional 52,612,410 shares of common stock would be issued and
outstanding. This additional issuance of shares of common stock would cause immediate and substantial dilution to our existing stockholders
and could cause a significant reduction in the market price of our common stock.
Sales of a significant number of shares of our common stock in the public market or the perception of such possible sales, could depress
the market price of our common stock.
Sales of a substantial number of shares of our common stock in the public markets, which include an offering of our preferred stock or
common stock could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity
or equity-related securities. We cannot predict the effect that future sales of our common stock or other equity-related securities would have
on the market price of our common stock.
Our share price could be volatile and our trading volume may fluctuate substantially.
The price of common stock has been and may in the future continue to be extremely volatile, with the sale price fluctuating from a low of
$0.13 to a high of $0.78 since January 1, 2013. Many factors could have a significant impact on the future price of our shares of common
stock, including:
22
● our inability to raise additional capital to fund our operations, whether through the issuance of equity securities or debt;
● our failure to successfully implement our business objectives;
● compliance with ongoing regulatory requirements;
● market acceptance of our products;
● technological innovations and new commercial products by our competitors;
● changes in government regulations;
● general economic conditions and other external factors;
● actual or anticipated fluctuations in our quarterly financial and operating results; and
● the degree of trading liquidity in our shares of common stock.
A decline in the price of our shares of common stock could affect our ability to raise further working capital
and adversely impact our ability to continue operations.
The relatively low price of our shares of common stock, and a decline in the price of our shares of common stock, could result in a
reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because a significant portion of our operations
has been and will continue to be financed through the sale of equity securities, a decline in the price of our shares of common stock could be
especially detrimental to our liquidity and our operations. Such reductions and declines may force us to reallocate funds from other planned
uses and may have a significant negative effect on our business plans and operations, including our ability to continue our current operations.
If the price for our shares of common stock declines, it may be more difficult to raise additional capital. If we are unable to raise sufficient
capital, and we are unable to generate funds from operations sufficient to meet our obligations, we will not have the resources to continue our
operations.
The market price for our shares of common stock may also be affected by our ability to meet or exceed expectations of analysts or
investors. Any failure to meet these expectations, even if minor, may have a material adverse effect on the market price of our shares of
common stock.
If we issue additional securities in the future, it will likely result in the dilution of our shares of existing stockholders.
Our restated articles of organization, as amended, currently authorize the issuance of up to 65,000,000 shares of common stock and
1,000,000 shares of preferred stock. As of March 30, 2015, we had 19,070,654 shares of common stock issued and outstanding; 300 units of
Series D issued and outstanding (convertible into 750,000 shares of common stock); 86,750 shares of Series G Convertible Preferred Stock
(convertible into 865,700 shares of common stock); 3,546 shares of Series J Convertible Preferred Stock (convertible into 3,546,000 shares of
common stock); 10,000 shares of Series H Convertible Preferred Stock (convertible into 1,000,000 shares of common stock); 21 shares of
Series H2 Convertible Preferred Stock (convertible into 2,100,000 shares of common stock); 11,416 shares of Series K Convertible Preferred
Stock (convertible into 11,416,000 shares of common stock); outstanding options and warrants to purchase an aggregate of 22,588,451 shares
of common stock; and convertible debt convertible into 10,346,259 shares of common stock. In December 2014 we increased the number of
our authorized shares of common stock from 50,000,000 to 65,000,000. From time to time, we also may increase the number of shares
available for issuance in connection with our equity compensation plan, we may adopt new equity compensation plans, and we may issue
awards to our employees and others who provide services to us outside the terms of our equity compensation plans. Our board of directors
may fix and determine the designations, rights, preferences or other variations of each class or series of preferred stock and may choose to
issue some or all of such shares to provide additional financing in the future.
The issuance of any securities for acquisition, licensing or financing efforts, upon conversion of any preferred stock or exercise of
warrants, pursuant to our equity compensation plans, or otherwise may result in a reduction of the book value and market price of the
outstanding shares of our common stock. If we issue any such additional securities, such issuance will cause a reduction in the proportionate
ownership and voting power of all current stockholders. Further, such issuance may result in a change in control of our Company.
Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy and sell our
common stock.
FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds
for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-
institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status,
investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that
speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-
dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our common stock and have an
adverse effect on the market for our shares.
23
Our Common Stock is subject to the "Penny Stock" rules of the SEC and the trading market in our securities is limited, which makes
transactions in our stock cumbersome and may reduce the value of an investment in our stock.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes
relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
●
●
That a broker or dealer approve a person's account for transactions in penny stocks; and
The broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
●
Obtain financial information and investment experience objectives of the person; and
● Make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission
relating to the penny stock market, which, in highlight form:
●
●
Sets forth the basis on which the broker or dealer made the suitability determination; and
That the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more
difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about
the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and
remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the limited market in penny stocks.
We have never declared or paid a cash dividend on our common stock and we do not expect to pay cash dividends on our common stock
in the foreseeable future.
Our shares of Series D Convertible Preferred Stock are entitled to certain rights, privileges and preferences over our common stock,
including a preference upon a liquidation of our Company, which will reduce amounts available for distribution to the holders of our common
stock.
The holders of our shares of Series D are entitled to payment, prior to payment to the holders of common stock in the event of liquidation
of the Company.
Shares eligible for future sale may adversely affect the market.
From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary
brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general,
pursuant to amended Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information
requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), current public
information and notice requirements.
24
Any substantial sales of our common stock pursuant to Rule 144 may have a material adverse effect on the market price of our common stock.
We could issue additional common stock, which might dilute the book value of our Common Stock.
Our Board of Directors has authority, without action or vote of our shareholders, to issue all or a part of our authorized but unissued
shares. Such stock issuances could be made at a price that reflects a discount or a premium from the then-current trading price of our common
stock. In addition, in order to raise capital, we may need to issue securities that are convertible into or exchangeable for our common stock.
These issuances would dilute the percentage ownership interest, which would have the effect of reducing your influence on matters on which
our shareholders vote, and might dilute the book value of our common stock. You may incur additional dilution if holders of stock warrants or
options, whether currently outstanding or subsequently granted, exercise their options, or if warrant holders exercise their warrants to purchase
shares of our common stock.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
Not Applicable.
ITEM 2.
PROPERTIES.
Our corporate office is currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375. We are currently paying $4,800 per
month, on a lease extension, signed on December 31, 2014, that expires December 31, 2015, for our corporate office.
On November 1, 2014 we signed a lease for lab space in Medford, MA. The lease expires December 30, 2017 and requires monthly
payments of $3,056 subject to annual cost of living increases.
ITEM 3.
LEGAL PROCEEDINGS.
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of
operations. There is no action, suit, or proceeding by any court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the executive officers of our Company or our subsidiary, threatened against or affecting our Company, our
common stock, our subsidiary or of our companies or our subsidiary’s officers or directors in their capacities as such, in which an adverse
decision could have a material adverse effect.
ITEM 4.
MINE SAFETY DISCLOSURES.
Not applicable.
[INTENTIONALLY LEFT BLANK]
25
PART II
ITEM 5.
PURCHASES OF EQUITY SECURITIES.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
Our common stock is currently traded on the OTCQB tier of the OTC Markets under the trading symbol “PBIO.” As previously reported,
the NASDAQ Hearings Panel determined to delist the Company’s common stock from the NASDAQ Stock Market and trading in the
Company’s common stock on the NASDAQ Stock Market was discontinued effective at the open of trading on April 5, 2012. Effective April
5, 2012, the Company’s common stock began trading on the OTCQB tier of OTC Markets.
The following table sets forth, for the periods indicated, the high and low sales price and the high and low bids, as applicable, per share of
common stock, as reported by the OTC Markets from January 1, 2013 through December 31, 2014.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Authorized Capital
Year Ended December 31, 2014
High
Low
$
$
$
$
0.78 $
0.64 $
0.40 $
0.35 $
0.23
0.32
0.24
0.13
Year Ended December 31, 2013
High
Low
$
$
$
$
0.51 $
0.42 $
0.33 $
0.29 $
0.20
0.23
0.20
0.16
As of December 31, 2014, we were authorized to issue 65,000,000 shares of common stock, $.01 par value, and 1,000,000 shares of
preferred stock, $.01 par value. Of the 1,000,000 shares of preferred stock, 20,000 shares were designated as Series A Junior Participating
Preferred Stock, 313,960 shares as Series A Convertible Preferred Stock, 279,256 shares as Series B Convertible Preferred Stock, 88,098
shares as Series C Convertible Preferred Stock, 850 shares as Series D Convertible Preferred Stock, 500 shares as Series E Convertible
Preferred Stock, 240,000 shares as Series G Convertible Preferred Stock, 10,000 shares as Series H Convertible Preferred Stock, 21 shares as
Series H2 Convertible Preferred Stock, 6,250 shares as Series J Convertible Preferred Stock and 15,000 shares as Series K Convertible
Preferred Stock.
As of December 31, 2014, there were 18,673,390 shares of common stock issued and 17,161,390 outstanding. Similarly, at such time,
there were no shares of Series A Junior Participating Preferred Stock; Series A Convertible Preferred Stock; Series B Convertible Preferred
Stock; Series C Convertible Preferred Stock; Series E Convertible Preferred Stock. As of December 31, 2014 there were 300 shares of Series
D Convertible Preferred Stock issued and outstanding and convertible into 750,000 shares of common stock, 86,570 shares of Series G
Convertible Preferred Stock issued and outstanding convertible into 865,700 shares of common stock, 10,000 shares of Series H Convertible
Preferred Stock issued and outstanding convertible into 1,000,000 shares of common stock, 21 shares of Series H2 Convertible Preferred
Stock issued and outstanding convertible into 2,100,000 shares of common stock, 3,546 shares of Series J Convertible Preferred Stock issued
and outstanding convertible into 3,546,000 shares of common stock, and 11,416 shares of Series K Convertible Preferred Stock issued and
outstanding convertible into 11,416,000 shares of common stock.
Approximate Number of Equity Security Holders
As of December 31, 2014, there were approximately 217 stockholders of record. Because shares of our common stock are held by
depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of
stockholders of record.
26
Dividends
We have never declared or paid any cash dividends on common stock and do not plan to pay any cash dividends on common stock in the
foreseeable future. The shares of Series D are entitled to payment prior to payment to the holders of common stock in the event of liquidation
of the Company.
As of December 31, 2014, dividends issued or to be issued for the years ended December 31, 2014 and 2013 are outlined in the table
below.
Series D
Series E
Series G
Series H
Series H2
Series J
Series K
Dividends paid in common stock or cash
For The Year Ended December 31,
Dividends payable
For The Year Ended December 31,
2014
-
-
58,268
-
-
24,648
-
82,916
$
$
$
2013
- Series D
60,000 Series E
- Series G
- Series H
- Series H2
- Series J
- Series K
$
60,000
2014
-
-
1,200
-
-
83,926
163,733
248,859
$
$
2013
-
-
89,527
-
-
95,341
3,131
187,999
$
$
Recent Sales of Unregistered Securities
In 2014 the Company completed a $1.5 million Private Placement of a Series K Convertible Preferred Stock offering consisting of five
tranches, beginning in December 2013. In 2014, the Company entered into four separate Securities Purchase Agreements with various
individuals (each, a “Purchaser”), representing the second through fifth tranche of a $1.5 million private placement .On January 29, 2014, the
Company sold an aggregate of 4,875 units for a purchase price of $250.00 per unit, or an aggregate Purchase Price of $1,218,750. On
February 28, 2014, the Company sold an aggregate of 1,854 units for a purchase price of $340.00 per unit or an aggregate Purchase Price of
$630,360. On June 30, 2014, the Company sold 730 units for a purchase price of $300.00 per unit or an aggregate purchase price of
$220,000. On November 14, 2014, the Company sold an aggregate of 1,052 units for a purchase price of $250.00 per unit (the “Purchase
Price”), or an aggregate Purchase Price of $263,000. Each unit purchased in the five tranches (“Unit”) consists of (i) one share of a newly
created series of preferred stock, designated Convertible Preferred Stock, par value $0.01 per share (the “Series K Convertible Preferred
Stock”), convertible into 1,000 shares of the Company’s common stock, par value $0.01 per share (“common stock”) and (ii) a warrant to
purchase 500 shares of common stock at an exercise price ranging from $0.3125 to $0.425 per share, for the five tranches, with a term expiring
three years from the respective closing date (“Warrant”). Of the $3,332,110 invested in the five tranches of the Private Placement,
$2,511,404 was received in cash and $820,706 was from the conversion of outstanding indebtedness and accrued board of directors’ fees. The
Purchasers in the five tranches of the Private Placement consisted of certain existing and new investors in the Company as well as all of the
members of the Company’s Board of Directors.
Repurchases by Pressure BioSciences, Inc.
On December 24, 2014, the Company entered into a Securities Purchase and Exchange Agreement (the “Securities Purchase and
Exchange Agreement”) with an investor, pursuant to which the Company agreed to exchange an aggregate of 2,100,000 shares of the
Company’s common stock held by the investor for 21 shares of a newly created series of preferred stock, designated Series H2 Convertible
Preferred Stock, par value $0.01 per share (the “Series H2 Convertible Preferred Stock”) in a non-cash transaction. The closing price of the
Common Stock on the date of the exchange was $0.27.
ITEM 6.
SELECTED FINANCIAL DATA.
Not Applicable.
27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
ITEM 7.
OPERATION.
OVERVIEW
We are focused on solving the challenging problems inherent in biological sample preparation, a crucial laboratory step performed by
scientists worldwide working in biological life sciences research. Sample preparation is a term that refers to a wide range of activities that
precede most forms of scientific analysis. Sample preparation is often complex, time-consuming, and in our belief, one of the most error-prone
steps of scientific research. It is a widely-used laboratory undertaking, the requirements of which drive what we believe is a large and growing
worldwide market. We have developed and patented a novel, enabling technology platform that can control the sample preparation process. It
is based on harnessing the unique properties of high hydrostatic pressure. This process, called pressure cycling technology, or PCT, uses
alternating cycles of hydrostatic pressure between ambient and ultra-high levels (35,000 psi or greater) to safely, conveniently and
reproducibly control the actions of molecules in biological samples, such as cells and tissues from human, animal, plant, and microbial
sources.
Our pressure cycling technology uses internally developed instrumentation that is capable of cycling pressure between ambient and ultra-
high levels - at controlled temperatures and specific time intervals - to rapidly and repeatedly control the interactions of bio-molecules, such as
DNA, RNA, proteins, lipids, and small molecules. Our laboratory instrument, the Barocycler®, and our internally developed consumables
product line, including PULSE (Pressure Used to Lyse Samples for Extraction) Tubes, other processing tubes, and application specific kits
(which include consumable products and reagents) together make up our PCT Sample Preparation System, or PCT SPS.
We have experienced negative cash flows from operations with respect to our PCT business since our inception. As of December 31,
2014, we did not have adequate working capital resources to satisfy our current liabilities. Based on our current projections, including equity
financing subsequent to December 31, 2014, we believe our current and projected cash resources will enable us to extend our cash for the
foreseeable future.
The audit report issued by our independent registered public accounting firm on our consolidated audited financial statements for the
fiscal year ended December 31, 2014 contains an explanatory paragraph regarding our ability to continue as a going concern. The audit report
issued by our independent registered public accounting firm for our financial statements for the fiscal year ended December 31, 2014 states
that there is substantial doubt in our ability to continue as a going concern due to the risk that we may not have sufficient cash and liquid assets
at December 31, 2014 to cover our operating and capital requirements for the next twelve-month period; and, if sufficient cash cannot be
obtained, we would have to substantially alter or possibly discontinue operations. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The conditions described above could adversely affect our ability to obtain additional financing on favorable terms, if at all. Such factors
may cause investors to have reservations about our long-term prospects and may adversely affect our relationships with customers. There can
be no assurance that our auditing firm will not issue the same opinion in the future. If we cannot successfully continue as a going concern, our
stockholders may lose their entire investment in us.
Management has developed a plan to continue operations. This plan includes continued control on expenses, streamlining operations, and
obtaining capital through equity and/or debt financing.
In 2014 the Company completed a $1.5 million Private Placement of a Series K Convertible Preferred Stock offering consisting of five
tranches, beginning in December 2013. In 2014, the Company entered into four separate Securities Purchase Agreements with various
individuals (each, a “Purchaser”), representing the second through fifth tranche of a $1.5 million private placement .On January 29, 2014, the
Company sold an aggregate of 4,875 units for a purchase price of $250.00 per unit, or an aggregate Purchase Price of $1,218,750. On
February 28, 2014, the Company sold an aggregate of 1,854 units for a purchase price of $340.00 per unit or an aggregate Purchase Price of
$630,360. On June 30, 2014, the Company sold 730 units for a purchase price of $300.00 per unit or an aggregate purchase price of
$220,000. On November 14, 2014, the Company sold an aggregate of 1,052 units for a purchase price of $250.00 per unit (the “Purchase
Price”), or an aggregate Purchase Price of $263,000 Each unit purchased in the five tranches (“Unit”) consists of (i) one share of a newly
created series of preferred stock, designated Series K Convertible Preferred Stock, par value $0.01 per share (the “Series K Convertible
Preferred Stock”), convertible into 1,000 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 500
shares of common stock at an exercise price equal to $0.3125 per share in the first and second tranche and $0.425 per share in the third tranche,
$0.375 for the fourth tranche and $0.3125 for the fifth tranche, with a term expiring three years from the respective closing
date (“Warrant”). Of the $3,332,110 invested in the five tranches of the Private Placement, $2,511,404 was received in cash and $820,706
was from the conversion of outstanding indebtedness and accrued board of directors’ fees. The Purchasers in the five tranches of the Private
Placement consisted of certain existing and new investors in the Company as well as all of the members of the Company’s Board of Directors.
28
On December 23, 2014, we closed a series of warrant reset agreements with 30 warrant holders in order to re-price their common stock
Purchase Warrants. In consideration for the Warrant Holder exercising their outstanding Warrants by or before December 23, 2014, the
Company agreed to reduce the exercise price to $0.25 per Warrant share. In addition, for each Warrant exercised the Warrant Holder received
a new Warrant to purchase that same number of Warrant Shares as exercised, at an exercise price of $0.40 per share. As a result of the Warrant
Reset Agreements, the Company received $903,000 and incurred $40,880 in fees. In addition we borrowed $1,428,561 in new debt during the
year and made payments on new and existing debt of $694,609 and converted $436,500 of debt to equity.
Although we have successfully completed equity financings and reduced expenses in the past, we cannot assure you that our plans to
address these matters in the future will be successful. Additional financing may not be available to us on a timely basis, if at all, or on terms
acceptable to us. In the event we are unable to raise sufficient funds on terms acceptable to us, we may be required to:
● severely limit or cease our operations or otherwise reduce planned expenditures and forego other business opportunities, which
could harm our business. The accompanying financial statements do not include adjustments that may be required in the event of
the disposal of assets or the discontinuation of the business;
● obtain financing with terms that may have the effect of diluting or adversely affecting the holdings or the rights of the holders of our
capital stock; or
● obtain funds through arrangements with future collaboration partners or others that may require us to relinquish rights to some or all
of our technologies or products.
We currently focus the majority of our resources in the area of biological sample preparation, referring to a wide range of activities that
precede scientific analysis performed by scientists worldwide working in biological life sciences research. Within the broad field of biological
sample preparation, we focus the majority of our product development efforts in three specific areas: mass spectrometry, forensics, and
histology.
● Biomarker Discovery - Mass Spectrometry. A biomarker is any substance (e.g., protein) that can be used as an indicator of the
presence or absence of a particular disease-state or condition, and to measure the progression and effects of therapy. Biomarkers
can help in the diagnosis, prognosis, therapy, prevention, surveillance, control, and cure of diseases and medical conditions. A
number of laboratory instruments are used to help discover biomarkers; a leader among these is the mass spectrometer. The mass
spectrometer is one of the laboratory instruments that is frequently used to help discover biomarkers.
A mass spectrometer is a laboratory instrument used in the analysis of biological samples, primarily proteins, in life sciences research.
According to a recently published market report by Transparency Market Research (www.transparencymarketresearch.com)
"Spectrometry Market (Atomic, Molecular and Mass Spectrometry) - Global Scenario, Trends, Industry Analysis, Size, Share &
Forecast 2011 – 2017," the global spectrometry market was worth $10.2 billion in 2011 and is expected to reach $15.2 billion in 2017,
growing at a compounded annual growth rate of 6.9% from 2011 to 2017. In the overall global market, the North American market is
expected to maintain its lead position in terms of revenue until 2017 and is expected to have approximately 36.2% of the market
revenue share in 2017 followed by Europe. We believe PCT offers significant advantages in speed and quality compared with current
techniques used in the preparation of samples for mass spectrometry analysis.
● Forensics. The detection of DNA has become a part of the analysis of forensic samples by laboratories and criminal justice agencies
worldwide in their efforts to identify the perpetrators of violent crimes and missing persons. Scientists from the University of North
Texas and Florida International University have reported improvements in DNA yield from forensic samples e.g., bone and hair
using PCT in the sample preparation process. We believe that that PCT may be capable of differentially extracting DNA from
sperm and (female) epithelial cells in swabs collected from rape victims and stored in rape kits. We believe that there are many
completed rape kits that remain untested for reasons such as cost, time, and quality of results. We further believe that the ability to
differentially extract DNA from sperm and not epithelial cells could reduce the cost of such testing, while increasing quality, safety,
and speed.
29
● Histology. The most commonly used technique worldwide for the preservation of cancer and other tissues for subsequent pathology
evaluation is formalin-fixation followed by paraffin-embedding. We believe that the quality and analysis of FFPE tissues is highly
problematic, and that PCT offers significant advantages over current processing methods, including standardization, speed,
biomolecule recovery, and safety.
We view federal agency grants to be an important part of our business plan. These types of grants allow us to bill the federal agency for
work that we are planning to perform as part of the development and commercialization of our technology. We generally start by submitting
initial grant requests that are in response to requests for proposals (“RFPs”) from the federal government through their Small Business
Innovation Research (“SBIR”) program. Initial (“SBIR Phase I”) grants are meant to fund approved research projects for six months, and
generally have budgets of approximately $100,000 to $150,000. Because our work in SBIR Phase I grants has been successful, we have
applied, and may in the future apply for larger National Institutes of Health (“NIH”) SBIR Phase II grants. Such larger grants are typically for
a two-year period and can offer as much as $1,000,000 to support significant research projects in areas we would otherwise expect to support
with internal funds should SBIR Phase II grants not be awarded. To date, we have been awarded four NIH SBIR Phase I grants and three
SBIR Phase II grants. The data on three of the NIH SBIR Phase I grants were the basis for the submission, and subsequent award, of all three
of the NIH SBIR Phase II grants awarded to us: one was in the approximate amount of $850,000 in August 2008, the second was in the
approximate amount of $850,000 in September 2011, and the third award was in the approximate amount of $1,020,000 awarded in November
2014. All three of the NIH SBIR Phase I grants and the August 2008 and September 2011, NIH SBIR Phase II grants have been completed.
The 2008 SBIR Phase II grant (2R44GM079059) was awarded to us by the NIH for work in the area of using PCT to extract protein
biomarkers, sub-cellular molecular complexes, and organelles, with the expectation that these studies might ultimately lead to the release of a
new, commercially available PCT-based system, with validated protocols, end-user kits, and other consumables intended for the extraction of
clinically important protein biomarkers, sub-cellular molecular complexes, and organelles from human and animal tissues. The 2011 SBIR II
contract (W81XWH-10-C-0-175) was awarded to us by the US Army for the development of a universal method for the inactivation,
extraction, and enrichment of pathogens in diagnostic samples, including arthropod hosts of military importance. The work covered by this
grant was significant in helping us develop the recently released Barozyme HT48 High Throughput System. The 2014 SBIR Phase II grant
(2R44HG007136) was awarded to us by the National Human Genome Research Institute of the National Institutes of Health ("NIH").
Entitled "High Pressure Sample Preparation Instrumentation for DNA Sequencing", this grant will help fund the development of an
automated, high-throughput, high pressure system (instrument and consumables), to enable significantly better control of DNA fragmentation -
a critical step in the preparation of samples for Next Generation Sequencing platforms. This system will be based on significant technological
advancements over the classic hydrodynamic DNA shearing approach that has been successfully and widely used in the field of DNA
sequencing for many years
We offer extended service contracts on our laboratory instrumentation to all of our customers. These service contracts allow a customer
who purchases a Barocycler instrument to receive on-site scheduled preventative maintenance, on-site repair and replacement of all worn or
defective component parts, and telephone support, all at no incremental cost for the life of the service contract. We offer one-year and four-
year extended service contracts to customers who purchase Barocycler instruments.
RESULTS OF OPERATIONS
Year Ended December 31, 2014 as compared with December 31, 2013
Revenue
We had total revenue of $1,374,744 in the year ended December 31, 2014 as compared with $1,503,288 in the prior year, a 9% decrease.
The decrease was due to the loss of the government grants for substantially all of the year.
Products, Services, and Other. Revenue from the sale of products and services was $1,350,150 in the year ended December 31, 2014 as
compared with $1,046,678 in the year ended December 31, 2013 an increase of $303,472 or 29%. During 2014, we had significant sales to our
primary distribution partner in the international markets, Constant Systems. We generated consumable sales of $167,380 for the year ended
December 31, 2014 as compared with $157,676 during the similar period of the prior year, an increase of $9,704, or 6%. Customers order
higher volumes of consumables with their initial order of our PCT and CP instrument systems thus consumables sales will increase as more
instrument systems are installed. Sales of our PCT Sample Preparation Accessories increased to $147,343 in 2014 from $113,435 in 2013, an
increase of $33,908, or 30%.
30
Grant Revenue. During 2014, we recorded $24,594 of grant revenue as compared with $456,610 in 2013. We completed work on a SBIR
Phase II contract received from the Department of Defense, or DOD, to fund the development of a PCT-based system to improve the
processing of pathogenic organisms in the third quarter of 2013. We completed all billable work on the grant from the National Institutes of
Health, or NIH, to help fund the development of a high pressure-based system to improve the processing of cancer and other samples in the
second quarter of 2013. In December, 2014 the Company was awarded a $1,020,969 SBIR Phase II grant (2R44HG007136) from the
National Human Genome Research Institute of the National Institutes of Health ("NIH"). Entitled "High Pressure Sample Preparation
Instrumentation for DNA Sequencing", this grant will help fund the development of an automated, high-throughput, high pressure system
(instrument and consumables), to enable significantly better control of DNA fragmentation - a critical step in the preparation of samples for
Next Generation Sequencing platforms. This system will be based on significant technological advancements over the classic hydrodynamic
DNA shearing approach that has been successfully and widely used in the field of DNA sequencing for many years.
Cost of Products and Services
The cost of products and services was $652,438 for the year ended December 31, 2014, as compared with $567,828 in 2013. Our gross
profit margin on products and services was 48% for the year ended December 31, 2014 vs. 46% at December 31, 2013. The relationship
between the cost of products and services and revenue depends greatly on the mix of instruments we sell, the quantity of such instruments, and
the mix of consumable products and instrument accessories that we sell in a given period.
Research and Development
Research and development expenditures were $952,555 for 2014 compared to $1,035,426 in 2013, a decrease of $82,871 or 8%. Research
and development expense included $30,550 and $53,509 of non-cash, stock-based compensation in 2014 and 2013, respectively. Additionally
in 2013 we incurred increased rent expense of $11,000 and $31,250 of consulting expense due to our collaboration agreement with a European
research lab.
Selling and Marketing
Selling and marketing expenses were $721,229 in 2014 compared to $752,288 in 2013, a decrease of $31,059, or 4%. This decrease was
primarily due to a reduction in marketing salaries expense. Selling and marketing expense included $19,792 and $26,551 of non-cash stock
based compensation expense in 2014 and 2013, respectively.
General and Administrative
General and administrative costs were $2,386,872 in the year ended December 31, 2014, as compared with $2,474,937 in 2013, a decrease
of $88,065 or 4%. Primarily due to a reduction in temporary help and consulting expense. Those savings were offset by increased spending on
investor relations and additional travel related costs in 2014 to augment our fund raising efforts. During the years ended December 31, 2014
and 2013, general and administrative expense included $50,783 and $56,736 of non-cash, stock-based compensation expense, respectively.
Operating Loss
Our operating loss was $3,338,350 for the year ended December 31, 2014 as compared with $3,327,192 for the prior year, an increase of
$11,158 or less than 1%. The increased operating loss was due primarily to the loss of government contract revenues offset by additional
product sales and reduced operating expenses.
Other income (expense), net
Interest Expense Net interest expense totaled $1,303,129 for the year ended December 31, 2014 as compared with interest expense of
$339,818 for the year ended December 31, 2013. We amortized approximately $1,166,234 of imputed interest against the debt discount on
short-term loans relating to the conversion options and prepayment penalties issued with the loans in 2014.
Other income (expense) net We recognized $169,554 in additional expense due to the initial fair value calculation on the conversion
option on our convertible debt instruments during 2014, this compares to $531,130 of additional expense in 2013.
31
Change in fair value of derivative liabilities
During the year ended December 31, 2014, we recorded non-cash income of $198,493 from warrant and conversion option liability
revaluation in our consolidated statements of operations due to a decrease in the fair value of the derivative warrants and conversion option
liabilities on our debt. This decrease in fair value was primarily due to a decrease in the price per share of our common stock and a reduction of
the days to conversion on December 31, 2014 as compared with the date of issuance of the convertible debt. During the year ended December
31, 2013, we recorded non-cash income of $113,713 for warrant and conversion option liability revaluation due to a decrease in fair value of
the liabilities.
Income Taxes
We did not record an income tax benefit or provision for the years ended December 31, 2014 or 2013.
Net Loss
During the year ended December 31, 2014, we recorded a net loss applicable to common stockholders of $6,251,726 or $(0.44) per share,
as compared with $5,247,449 or $(0.44) per share during our year ended December 31, 2013. Although the net loss applicable to common
stockholders increased in 2014 due to the amortization to interest expense, the loss per share remained essentially the same due primarily to
the increased number of shares of common stock outstanding from the issuance of common stock related to the exercise of warrants in
2014. See Note 2 of the accompanying Notes to Consolidated Financial Statements under the “Computation of Loss per Share” heading.
LIQUIDITY AND FINANCIAL CONDITION
As of December 31, 2014, we did not have adequate working capital resources to satisfy our current liabilities. In 2014 the Company
completed Private Placement of a Series K Convertible Preferred Stock offering consisting of five tranches, beginning in December 2013. In
each tranche we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with various individuals (each, a
“Purchaser”), pursuant to which we sold an aggregate of 4,000 units for a purchase price of $250.00 per unit or an aggregate purchase price of
$1,000,000, 4,875 units for a purchase price of $250.00 per unit, or an aggregate purchase price of $1,218,750 and 1,854 units for purchase
price of $340.00, or an aggregate purchase price of $630,360, respectively, 734 units for a purchase price of $300.00, or an aggregate purchase
price of $220,000 and 1,052 units for a purchase price of $250.00, or an aggregate purchase price of $263,000. Each unit purchased in the
tranches (“Unit”) consists of (i) one share of a newly created series of preferred stock, designated Series K Convertible Preferred Stock, par
value $0.01 per share (the “Series K Convertible Preferred Stock”), convertible into 1,000 shares of the Company’s common stock, par value
$0.01 per share (“common stock”) and (ii) a warrant to purchase 500 shares of common stock at an exercise price equal to $0.3125 per share in
the first and second tranche and $0.425 per share in the third tranche, $0.375 for the fourth tranche and $0.3125 for the fifth tranche, with a
term expiring three years from the respective closing date (“Warrant”). Of the $3,332,110 invested in the five tranches of the Private
Placement, $2,500,779 was received in cash and $831,331 was from the conversion of outstanding indebtedness and accrued board of
directors’ fees. The Purchasers in the five tranches of the Private Placement consisted of certain existing and new investors in the Company
as well as all of the members of the Company’s Board of Directors.
On December 23, 2014, we closed a series of warrant reset agreements with 30 warrant holders in order to re-price their common stock
Purchase Warrants. In consideration for the Warrant Holder exercising their outstanding Warrants by or before December 23, 2014, the
Company agreed to reduce the exercise price to $0.25 per Warrant share. In addition, for each Warrant exercised the Warrant Holder received
a new Warrant to purchase that same number of Warrant Shares as exercised, at an exercise price of $0.40 per share. As a result of the Warrant
Reset Agreements, the Company received $903,000 and incurred $40,880 in fees. In addition we borrowed $1,428,561 in new debt during the
year and made payments on new and existing debt of $719,791 and converted $464,250 of debt and accrued interest to equity.
We believe our current and projected cash resources will enable us to extend our cash resources for the foreseeable future. Although we
have successfully completed equity financings and reduced expenses in the past, we cannot assure you that our plans to address these matters
in the future will be successful. Since January 1, 2015 thru March 30, 2015 we have borrowed an additional $1,451,250 of convertible debt
and merchant loans and have paid back $646,200 in loans and prepayment penalties.
32
We believe we will need approximately $5 million in additional capital to fund our three-pronged operational plan, which was designed to
help increase revenues by:
A. implementing a next-generation upgrade to our product line and offering a superior instrument with greater net margins;
B. gaining additional non-dilutive monies from governmental research and development applications, and/or engineering projects; and
C. hiring a small team of sales and marketing persons to target research facilities and academic institutions, and cultivate our current
customer list of pharmaceutical, military and paramilitary organizations.
However, if we are unable to obtain such funds, through sales, the capital markets or other source of financing on acceptable terms, or at
all, we will likely be required to cease our operations, pursue a plan to sell our operating assets, or otherwise modify our business strategy,
which could materially harm our future business prospects. These conditions raise substantive doubt about our ability to continue as a going
concern.
Net cash used in operating activities was $3,210,578 for the year ended December 31, 2014 as compared with $2,342,603 for the year
ended December 31, 2013. Our accounts payable balance was $1,035,781 as of December 31, 2014, as compared with to $1,102,772 as of
December 31, 2013, a decrease of $66,991 for 2014. Accounts payable should continue to become more current as we continue to secure more
capital and funds from operations allow for more timely payment of our vendors.
We invested $7,139 in fixed assets during the year ended December 31, 2014 as compared with $58,749 investment in fixed assets in the
prior year.
Net cash provided by financing activities for the year ended December 31, 2014 was $3,660,248 as compared with $2,431,308 in the prior
year.
In 2014, we raised approximately:
A $2,332,110 in aggregate gross proceeds from four tranches of our Series K private placement, pursuant to which we sold an
aggregate of 8,515 units for a purchase price ranging from $250 to $340 per unit. Each unit consists of one share of Series K
Convertible Preferred Stock, convertible into 1,000 shares of our common stock and a three-year warrant to purchase 500 shares of
our common stock at a per share exercise price of $0.3125 to $0.425. Of the $2,332,110 invested in the Series K Private Placement
$1,939,360 was received in cash and $392,750 was from the conversion of outstanding indebtedness and board of director and other
fees.
B $903,000 in aggregate gross proceeds from our December 23, 2014 Warrant reset agreements, pursuant to which we closed a series
of warrant reset agreements with 30 warrant holders in order to re-price their common stock Purchase Warrants. In consideration for
the Warrant Holder exercising their outstanding Warrants by or before December 23, 2014, the Company agreed to reduce the
exercise price to $0.25 per Warrant share. In addition, for each Warrant exercised the Warrant Holder received a new Warrant to
purchase that same number of Warrant Shares as exercised, at an exercise price of $0.40 per share. As a result of the Warrant Reset
Agreements, the Company received $903,000 and incurred $40,880 in fees.
C Loans in the aggregate amount of approximately $1,428,561 were received during the year and we made payments on new and
existing debt of $719,791 and converted $464,250 of debt to equity.
Our common stock is listed on the Over-the-Counter QB market under the ticker symbol PBIO.
COMMITMENTS AND CONTINGENCIES
Royalty Commitments
In 1996, we acquired our initial equity interest in BioSeq, Incorporated (“BioSeq”). At the time, BioSeq was developing our original
pressure cycling technology. They acquired its pressure cycling technology from BioMolecular Assays, Inc. (“BMA”) under a technology
transfer and patent assignment agreement. In 1998, we purchased all of the remaining, outstanding capital stock of BioSeq; and, consequently,
the technology transfer and patent assignment agreement was amended to require us to pay BMA a 5% royalty on our sales of products or
services that incorporate or utilize the original pressure cycling technology that BioSeq acquired from BMA. Similarly, the Company is
required to pay BMA 5% of the proceeds from any sale, transfer or license of all or any portion of the original pressure cycling technology.
These payment obligations terminate in 2016. During the year ended December 31, 2014 and 2013, we incurred approximately $31,835 and
$23,785, respectively, in royalty expense associated with our obligation to BMA.
33
In connection with our acquisition of BioSeq, we licensed certain limited rights to the original pressure cycling technology back to BMA.
This license is non-exclusive and limits the use of the original pressure cycling technology by BMA solely for molecular applications in
scientific research and development, and in scientific plant research and development. BMA is required to pay us a royalty equal to 20% of any
license or other fees and royalties, but not including research support and similar payments, it receives in connection with any sale, assignment,
license or other transfer of any rights granted to BMA under the license. BMA must pay us these royalties until the expiration of the patents
held by BioSeq in1998, which we anticipate will be 2016. We have not received any royalty payments from BMA under this license.
Battelle Memorial Institute
In December 2008, we entered into an exclusive patent license agreement with the Battelle Memorial Institute ("Battelle"). The licensed
technology is described in the patent application filed by Battelle on July 31, 2008 (US serial number 12/183,219). This application includes
subject matter related to a method and a system for improving the analysis of protein samples including, through an automated system,
utilizing pressure and a pre-selected agent to obtain a digested sample in a significantly shorter period of time than current methods, while
maintaining the integrity of the sample throughout the preparatory process. Pursuant to the terms of the agreement, we paid Battelle a non-
refundable initial fee of $35,000. In addition to royalty payments on net sales on “licensed products,” we are obligated to make minimum
royalty payments for each year we retain the rights outlined in the patent license agreement; and, we are required to have our first commercial
sale of the licensed products within one year following the issuance of the patent covered by the licensed technology. After re-negotiating the
terms of the contract in 2013 the minimum annual royalty was $1,200 and $4,025 for the years ended 2014 for 2013, respectively.
Target Discovery Inc.
In March 2010, we signed a strategic product licensing, manufacturing, co-marketing, and collaborative research and development
agreement with Target Discovery Inc. (“TDI”). Under the terms of the agreement, we have been licensed by TDI to manufacture and sell a
highly innovative line of chemicals used in the preparation of tissues for scientific analysis ("TDI reagents"). The TDI reagents were designed
for use in combination with our pressure cycling technology. The respective companies believe that the combination of PCT and the TDI
reagents can fill an existing need in life science research for an automated method for rapid extraction and recovery of intact, functional
proteins associated with cell membranes in tissue samples. We did not incur any royalty obligation under this agreement in 2014 or 2013.
Severance and Change of Control Agreements
Mr. Schumacher and Drs. Ting, Lazarev and Lawrence, all executive officers of the Company, are entitled to receive a severance payment
if terminated by us without cause. The severance benefits would include a payment in an amount equal to one year of such executive officer’s
annualized base salary compensation plus accrued paid time off. Additionally, the officer will be entitled to receive medical and dental
insurance coverage for one year following the date of termination.
Each of these executive officers, other than Mr. Schumacher, is entitled to receive a change of control payment in an amount equal to one
year of such executive officer’s annualized base salary compensation, accrued paid time off, and medical and dental coverage, in the event of a
change of control of the Company. In the case of Mr. Schumacher, this payment would be equal to two years of annualized base salary
compensation, accrued paid time off, and two years of medical and dental coverage. The severance payment is meant to induce the executive
to become an employee of the Company and to remain in the employ of the Company, in general, and particularly in the occurrence of a
change in control, as a disincentive to the control change, as a disincentive to the control change.
Lease Commitments
We lease building space under non-cancelable leases in South Easton, MA and lab space in Medford, MA. Rental costs are expensed as
incurred. During 2014 and 2013 we incurred $98,600 and $123,600, respectively, in rent expense for the use of our corporate office and
research and development facilities
34
Following is a schedule by years of future minimum rental payments required under operating leases with initial or remaining non-
cancelable lease terms in excess of one year as of December 31, 2014:
2015
Thereafter
$
$
94,272
73,344
167,616
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of December 31, 2014 and December 31, 2013.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Principles of Consolidation
The consolidated financial statements include the accounts of Pressure BioSciences, Inc., and its wholly-owned subsidiary PBI BioSeq,
Inc. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
To prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America, we are required to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. In addition, significant estimates were made in projecting future cash flows to quantify impairment of assets, deferred tax
assets, the costs associated with fulfilling our warranty obligations for the instruments that we sell, and the estimates employed in our
calculation of fair value of stock options awarded. We base our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results could differ from the estimates and assumptions used.
Revenue Recognition
We recognize revenue in accordance with FASB ASC 605, Revenue Recognition. Revenue is recognized when realized or earned when
all the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred and risk of loss has passed to the
customer; the seller’s price to the buyer is fixed or determinable; and collectability is reasonably assured.
Our current instruments, the Barocycler NEP3229 and NEP2320, require a basic level of instrumentation expertise to set-up for initial
operation. To support a favorable first experience for our customers, we send a highly trained technical representative to the customer site to
install every Barocycler that we sell, lease, or rent through our domestic sales force. The installation process includes uncrating and setting up
the instrument, followed by introductory user training. Product revenue related to current Barocycler instrumentation is recognized upon the
completion of the installation and introductory training process of the instrumentation at the customer location, for domestic and foreign
installations. Product revenue related to sales of PCT instrumentation to our foreign distributors is recognized upon shipment through a
common carrier. We provide for the expected costs of warranty upon the recognition of revenue for the sales of our instrumentation. Our sales
arrangements do not provide our customers with a right of return. Product revenue related to our consumable products such as PULSE Tubes,
MicroTubes, and application specific kits is recorded upon shipment through a common carrier. Shipping costs are included in sales and
marketing expense. Any shipping costs billed to customers are recognized as revenue.
In accordance with FASB ASC 840, Leases, we account for our lease agreements under the operating method. We record revenue over
the life of the lease term and we record depreciation expense on a straight-line basis over the thirty-six month estimated useful life of the
Barocycler instrument. The depreciation expense associated with assets under lease agreement is included in the “Cost of PCT products and
services” line item in our accompanying consolidated statements of operations. Many of our lease and rental agreements allow the lessee to
purchase the instrument at any point during the term of the agreement with partial or full credit for payments previously made. We pay all
maintenance costs associated with the instrument during the term of the leases.
35
Revenue from government grants is recorded when expenses are incurred under the grant in accordance with the terms of the grant award.
Under fixed fee government grants, the Company records revenue over the life of the government grant.
Our transactions sometimes involve multiple elements i.e., products and services. Revenue under multiple element arrangements is
recognized in accordance with FASB ASC 605-25 Multiple-Element Arrangements (“ASC 605”). When vendor specific objective evidence or
third party evidence of selling price for deliverables in an arrangement cannot be determined, the Company develops a best estimate of the
selling price to separate deliverables, and allocates arrangement consideration using the relative selling price method. Additionally, this
guidance eliminates the residual method of allocation. If an arrangement includes undelivered elements that are not essential to the
functionality of the delivered elements, we defer the fair value of the undelivered elements with the residual revenue allocated to the delivered
elements. Fair value is determined based upon the price charged when the element is sold separately. If there is not sufficient evidence of the
fair value of the undelivered elements, no revenue is allocated to the delivered elements and the total consideration received is deferred until
delivery of those elements for which objective and reliable evidence of the fair value is not available. We provide certain customers with
extended service contracts with revenue recognized ratably over the life of the contract.
Intangible Assets
We have classified as intangible assets, costs associated with the fair value of certain assets of businesses acquired. Intangible assets
relate to the remaining value of acquired patents associated with PCT. The cost of these acquired patents is amortized on a straight-line basis
over sixteen years. We annually review our intangible assets for impairment. When impairment is indicated, any excess of carrying value over
fair value is recorded as a loss. An impairment analysis of intangible assets as of December 31, 2014 concluded they were not impaired.
Long-Lived Assets and Deferred Costs
In accordance with FASB ASC 360-10-05, Property, Plant, and Equipment, if indicators of impairment exist, we assess the recoverability
of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through the undiscounted future
operating cash flows related to the long-lived assets. If impairment is indicated, we measure the amount of such impairment by comparing the
carrying value of the asset to the fair value of the asset and record the impairment as a reduction in the carrying value of the related asset and a
charge to operating results. While our current and historical operating losses and cash flow are indicators of impairment, we performed an
impairment analysis at December 31, 2014 and determined that our long-lived assets were not impaired.
Warrant Derivative Liability
The warrants issued in connection with the registered direct offering of Series D Convertible Preferred Stock (the “Series D Warrants”)
are measured at fair value and liability-classified because the Series C Warrants and Series D Warrants contained “down-round protection”
and therefore, did not meet the scope exception for treatment as a derivative under ASC 815, Derivatives and Hedging, Since “down-round
protection” is not an input into the calculation of the fair value of the warrants, the warrants cannot be considered indexed to the Company’s
own stock which is a requirement for the scope exception as outlined under ASC 815. The estimated fair value of the warrants was determined
using the binomial model, resulting in an allocation of the gross proceeds of $283,725 to the warrants issued in the Series D registered direct
offering. The fair value will be affected by changes in inputs to that model including our stock price, expected stock price volatility, the
contractual term, and the risk-free interest rate. We will continue to classify the fair value of the warrants as a liability until the warrants are
exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability, whichever comes first. The
down-round protection for the Series D Warrants survives for the life of the Series D Warrants which ends in May 2017.
Conversion Option Liability
The Company has signed convertible notes and has determined that conversion options are embedded in the notes and it is required to
bifurcate the conversion option from the host contract under ASC 815 and account for the derivatives at fair value. The estimated fair value of
the conversion options was determined using the binomial model. The fair value of the conversion options will be classified as a liability until
the debt is converted by the note holders or paid back by the Company. The fair value will be affected by changes in inputs to that model
including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. We will continue to classify the
fair value of the conversion options as a liability until the conversion options are exercised, expire or are amended in a way that would no
longer require these conversion options to be classified as a liability, whichever comes first. The Company has adopted a sequencing policy
that reclassifies contracts (from equity to liabilities) with the most recent inception date first. Thus any available shares are allocated first to
contracts with the most recent inception dates.
36
Accounts Receivable and Allowance for Doubtful Accounts
We maintain allowances for estimated losses resulting from the inability of our customers to make required payments. Judgments are used
in determining the allowance for doubtful accounts and are based on a combination of factors. Such factors include historical collection
experience, credit policy and specific customer collection issues. In circumstances where we are aware of a specific customer’s inability to
meet its financial obligations to us (e.g., due to a bankruptcy filing), we record a specific reserve for bad debts against amounts due to reduce
the net recognized receivable to the amount we reasonably believe will be collected. We perform ongoing credit evaluations of our customers
and continuously monitor collections and payments from our customers. While actual bad debts have historically been within our expectations
and the provisions established, we cannot guarantee that we will continue to experience the same bad debt rates that we have in the past. A
significant change in the liquidity or financial position of any of our customers could result in the uncollectability of the related accounts
receivable and could adversely impact our operating cash flows in that period.
Inventories
We value our inventories at lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method, including material, labor
and factory overhead. In assessing the ultimate realization of inventories, management judgment is required to determine the reserve for
obsolete or excess inventory. Inventory on hand may exceed future demand either because the product is obsolete, or because the amount on
hand is more than can be used to meet future needs. We provide for the total value of inventories that we determine to be obsolete or excess
based on criteria such as customer demand and changing technologies. We historically have not experienced significant inaccuracies in
computing our reserves for obsolete or excess inventory.
Equity Transactions
We evaluate the proper classification of our equity instruments that embody an unconditional obligation requiring the issuer to redeem it
by transferring assets at a determinable date or that contain certain conditional obligations, typically classified as equity, be classified as a
liability. We record financing costs associated with our capital raising efforts in our statements of operations. These include amortization of
debt issue costs such as cash, warrants and other securities issued to finders and placement agents, and amortization of preferred stock discount
created by in-the-money conversion features on convertible debt and allocates the proceeds amongst the securities based on relative fair
values or based upon the residual method. We based our estimates and assumptions on the best information available at the time of valuation,
however, changes in these estimates and assumptions could have a material effect on the valuation of the underlying instruments.
Stock-Based Compensation
We account for employee and non-employee director stock-based compensation using the fair value method of accounting.
Compensation cost arising from stock options to employees and non-employee directors is recognized using the straight-line method over the
vesting period, which represents the requisite service or performance period. The calculation of stock-based compensation requires us to
estimate several factors, most notably the term, volatility and forfeitures. We estimate the option term using historical terms and estimate
volatility based on historical volatility of our common stock over the option’s expected term. Expected forfeitures based on historical
forfeitures in calculating the expense related to stock-based compensation associated with stock awards. Our estimates and assumptions are
based on the best information available at the time of valuation, however, changes in these estimates and assumptions could have a material
effect on the valuation of the underlying instruments.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
37
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors of
Pressure BioSciences, Inc. and Subsidiary:
We have audited the consolidated balance sheets of Pressure BioSciences, Inc. and Subsidiary (the “Company”) as of December 31, 2014 and
2013 and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pressure
BioSciences, Inc. and Subsidiary as of December 31, 2014 and 2013 and the results of its operations and its cash flows for the years then ended
in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has had recurring net losses and continues to experience negative cash flows from operations.
These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are
described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MARCUM LLP
Boston, Massachusetts
March 31, 2015
38
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2014 AND 2013
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable
Inventories, net of reserves of $50,000 at December 31, 2014 and December 31, 2013
Prepaid income taxes
Prepaid expenses and other current assets
Total Current Assets
Property and Equipment, Net
Intangible assets, net
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable
Accrued employee compensation
Accrued professional fees and other
Deferred revenue
Promissory note
Related party debt
Convertible debt, net of debt discount of $328,681 at December 31, 2014 and $331,306 at December 31,
2013
Other debt
Warrant derivative liability
Conversion option liability
Total Current Liabilities
Deferred revenue
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' DEFICIT
Series D convertible preferred stock, $.01 par value; 850 shares authorized; 300 shares issued and
outstanding on December 31, 2014 and 2013 respectively (Liquidation value of $300,000)
Series G convertible preferred stock, $.01 par value; 240,000 shares authorized; 86,570 and 145,320 shares
issued and outstanding on December 31, 2014 and 2013, respectively
Series H convertible preferred stock $.01 par value 10,000 shares authorized; 10,000 shares issued and
outstanding on December 31, 2014 and 2013 respectively
Series H2 convertible preferred stock $.01 par value 21 shares authorized; 21 shares issued and outstanding
on December 31, 2014 and 0 at December 31, 2013
Series J convertible preferred stock $.01 par value 6,250 shares authorized; 3,546 and 5,088 shares issued
and outstanding on December 31, 2014 and 2013, respectively
Series K convertible preferred stock $.01 par value 15,000 shares authorized; 11,416 and 4,000 shares
issued and outstanding on December 31, 2014 and 2013, respectively
Common stock, $.01 par value; 65,000,000 and 50,000,000 shares authorized; and 18,673,390 shares
issued and outstanding on December 31, 2014 and 12,024,267 issued and outstanding on December 31,
2013
Warrants to acquire common stock
Additional paid-in capital
Accumulated deficit
Total Stockholders' Deficit
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
2014
2013
$
$
473,948
272,022
850,552
7,381
104,204
1,708,107
36,025
31,417
147,635
736,676
7,381
85,573
1,008,682
58,102
-
1,744,132
$
36,498
1,103,282
$
1,035,781
157,347
719,432
27,117
-
-
1,004,513
80,480
159,875
590,341
3,774,886
28,977
3,803,863
3
866
100
-
36
114
1,102,772
149,333
615,244
28,189
75,000
25,182
281,796
89,989
344,570
356,197
3,068,272
2,785
3,071,057
3
1,453
100
-
51
40
120,243
186,734
4,267,402
5,253,566
19,509,921
24,617,564
(32,118,714) (25,866,988)
(1,967,775)
1,103,282
(2,059,731)
$
1,744,132
$
The accompanying notes are an integral part of these consolidated financial statements.
39
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Revenue:
Products, services, other
Grant revenue
Total revenue
Costs and expenses:
Cost of products and services
Research and development
Selling and marketing
General and administrative
Total operating costs and expenses
Operating loss
Other income (expense):
Interest expense, net
Other income (expense), net
Change in fair value of derivative liabilities
Total other income (expense)
Net loss
Accrued and deemed dividends on convertible preferred stock
Net loss applicable to common shareholders
For the Year Ended
December 31,
2014
2013
$
$
1,350,150
24,594
1,374,744
1,046,678
456,610
1,503,288
652,438
952,555
721,229
2,386,872
4,713,094
567,828
1,035,426
752,288
2,474,938
4,830,480
(3,338,350)
(3,327,192)
(1,303,129)
(169,554)
198,493
(1,274,190)
(339,818)
(531,130)
113,713
(757,235)
(4,612,540)
(1,639,186)
(4,084,427)
(1,163,022)
$ (6,251,726) $ (5,247,449)
Net loss per share attributable to common stockholders - basic and diluted
$
(0.44) $
(0.44)
Weighted average common shares outstanding basic and diluted
14,264,753
11,821,870
The accompanying notes are an integral part of these consolidated financial statements.
40
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Series D Preferred
Stock
Series G Preferred
Stock
Series H Preferred
Stock
Series H2 Preferred
Stock
Shares Amount
Shares
Amount Shares Amount Shares Amount
300
$
3
145,320
$ 1,453
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,000
100
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
Series J Preferred
Stock
Shares Amount
-
-
-
$
-
-
-
-
5,088
51
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
300
$
3
145,320
$ 1,453
10,000
$
100
-
$
-
5,088
$
51
-
-
-
-
-
-
-
-
-
-
-
-
(58,750)
(587)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,542)
(15)
-
-
-
BALANCE,
January 1, 2013
Stock-based
compensation
Issuance of
Series J
convertible
preferred stock
Issuance of
Series K
convertible
preferred stock
Fair value of
common stock for
services
Offering costs
for issuance of
preferred stock
Issuance of
warrants in
connection
short-term loans
Issuance of
warrants for
services
Conversion of
common stock
to preferred
stock
Dividends
earned on
preferred stock
Beneficial conversion
feature on convertible
preferred stock
Reclassification
of conversion
option liabilities
Net loss
BALANCE,
December 31,
2013
Stock-based
compensation
Issuance of
Series K
convertible
preferred stock
Conversion of
Series G
convertible
preferred stock
Conversion of
Series J
convertible
preferred stock
Conversion of
Series K
convertible
preferred stock
Fair value of
common and
preferred stock
issued for
services
Exercise of
warrants
Warrant reset
Offering cost
for issuance of
preferred stock
Issuance of
warrants in
connection
short-term loans
Issuance of
warrants for
services
Issuance of
stock in lieu of
cash for board
of director fees
Conversion of
common stock
to preferred
stock
Conversion of
debt for common
stock
Issuance of
common stock
for preferred
dividends
Dividends
earned on
preferred stock
Beneficial
conversion
feature on
convertible
preferred stock
Reclassification
of Series D
warrant liability
Reclassification
of conversion
option liabilities
Net loss
BALANCE,
December 31,
2014
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
300
$
3
86,570
$
866
10,000
$
100
21
$
-
3,546
$
36
The accompanying notes are an integral part of these consolidated financial statements
41
.PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Series K Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Warrants
Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Total
Stockholders'
Deficit
-
$
-
12,149,267
$ 121,493
$3,015,996
$15,940,818
$(20,619,539) $(1,539,776)
BALANCE, January 1,
2013
Stock-based
compensation
Issuance of Series J
convertible preferred
stock
Issuance of Series K
convertible preferred
stock
Fair value of common
stock issued for services
Offering costs for
issuance of preferred
stock
Issuance of warrants in
connection short-term
loans
Issuance of warrants for
services
Conversion of common
stock to preferred stock
Dividends earned on
preferred stock
Beneficial conversion
feature on convertible
preferred stock
Reclassification of
conversion option
liabilities
Net loss
BALANCE, December
31, 2013
Stock-based
compensation
Issuance of Series K
convertible preferred
stock
Conversion of Series G
convertible preferred
stock
Conversion of Series J
convertible preferred
stock
Conversion of Series K
convertible preferred
stock
Fair value of common
and preferred stock issued
for services
Exercise of warrants
Warrant reset
Offering costs for
issuance of preferred
stock
Issuance of warrants in
connection short-term
loans
Issuance of warrants for
services
Issuance of stock in lieu
-
-
-
-
4,000
40
-
-
-
-
-
-
875,000
8,750
-
-
-
-
-
-
-
-
-
-
-
(1,000,000)
(10,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
136,796
-
136,796
885,309
1,149,340
-
2,034,700
271,422
728,538
1,000,000
-
-
467,962
(67,739)
-
-
9,900
73,647
21,028
-
-
-
-
-
-
-
476,712
(67,739)
73,647
21,028
-
-
(160,420)
(160,420)
-
1,002,602
(1,002,602)
-
-
-
141,704
-
141,704
(4,084,427) (4,084,427)
-
-
-
-
-
-
-
-
-
-
4,000
$
40
12,024,267
$ 120,243
$4,267,402
$19,509,921
$(25,866,988) $(1,967,775)
-
101,125
-
101,125
654,845
1,592,432
-
2,247,359
-
8,176
-
-
-
82
-
-
-
-
-
587,500
5,875
-
1,541,000
15,410
(1,099)
(11) 1,099,000
10,990
-
-
-
(5,288)
(15,395)
(10,979)
-
-
-
-
-
-
-
-
-
-
-
-
588,830
596,658
3,612,000
5,888
5,967
36,120
-
-
163,654
208,304
143,198
662,745
-
-
-
-
-
-
-
(8,000)
49,599
93,488
-
-
-
-
-
-
-
-
-
-
-
-
-
-
214,192
149,165
862,519
(8,000)
49,599
93,488
of cash for board of
director fees
Conversion of common
stock to preferred stock
Conversion of debt for
common stock
Issuance of common
stock for preferred
dividends
Dividends earned on
preferred stock
Beneficial conversion
feature on convertible
preferred stock
Reclassification of
Series D warrant liability
Reclassification of
conversion option
liabilities
Net loss
BALANCE, December
31, 2014
399
3
-
-
24,578
60,169
-
-
-
-
-
-
-
-
-
(2,100,000)
(21,000)
-
-
-
-
-
-
-
510,000
5,100
214,135
2,141
-
-
-
-
-
-
-
-
-
-
-
-
-
-
84,750
-
136,500
82,915
21,000
131,400
80,774
-
-
-
-
-
(143,771)
(143,771)
-
1,495,415
(1,495,415)
-
-
-
-
330,405
-
330,405
320,338
-
320,338
(4,612,540) (4,612,540)
-
11,416
$
114
18,673,390
$ 186,734
$5,253,566
$24,617,564
$(32,118,714) $(2,059,731)
The accompanying notes are an integral part of these consolidated financial statements.
42
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Accretion of non-cash interest and amortization of debt issue costs
Stock-based compensation expense
Amortization of third party fees paid in restricted common stock
Amortization of board of director fees paid in preferred stock
Change in fair value of derivative liabilities
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Accounts payable
Accrued employee compensation
Deferred revenue and other accrued expenses
Prepaid expenses and other current assets
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on convertible debt, net of issuance costs
Borrowings on related party and other debt, net of issuance costs
Repayment of related party and other debt
Repayment of convertible debt
Payment of dividends
Net proceeds from the exercise of common stock warrants
Net proceeds from warrant reset transaction
Net proceeds from the issuance of preferred stock
Net cash provided by financing activities
Change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
SUPPLEMENTAL INFORMATION:
Interest paid in cash
NON CASH FINANCING ACTIVITIES:
Convertible debt exchanged for common stock
Preferred dividends paid with common stock
Convertible debt and accrued interest exchanged for preferred stock
Incremental value from warrant modifications
Fair value of common stock issued for services
Issuance of preferred stock for board fees
Beneficial conversion feature on convertible preferred stock
Dividends earned on preferred stock
For the Year Ended
December 31,
2014
2013
$ (4,612,540) $ (4,084,427)
65,714
1,310,351
101,125
307,013
84,750
(198,493)
79,563
708,729
136,796
480,492
-
(113,713)
(124,387)
(113,876)
(66,991)
8,014
47,373
(18,631)
(3,210,578)
68,630
186,686
(97,074)
29,995
257,387
4,333
(2,342,603)
(7,139)
(7,139)
(58,749)
(58,749)
1,126,744
302,252
(416,691)
(303,100)
-
149,165
862,518
1,939,360
3,660,248
1,374,297
222,000
(180,304)
(350,000)
(60,000)
-
-
1,425,315
2,431,308
442,531
31,417
473,948
$
29,956
1,461
31,417
14,832
$
-
136,500
82,916
300,000
163,654
214,192
84,750
1,495,415
143,771
$
-
-
1,503,530
-
467,964
38,126
1,002,602
160,420
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
43
(1) Business Overview, Liquidity and Management Plans
We are focused on solving the challenging problems inherent in biological sample preparation, a crucial laboratory step performed by
scientists worldwide working in biological life sciences research. Sample preparation is a term that refers to a wide range of activities that
precede most forms of scientific analysis. Sample preparation is often complex, time-consuming, and in our belief, one of the most error-prone
steps of scientific research. It is a widely-used laboratory undertaking, the requirements of which drive what we believe is a large and growing
worldwide market. We have developed and patented a novel, enabling technology platform that can control the sample preparation process. It
is based on harnessing the unique properties of high hydrostatic pressure. This process, called pressure cycling technology, or PCT, uses
alternating cycles of hydrostatic pressure between ambient and ultra-high levels (35,000 psi or greater) to safely, conveniently and
reproducibly control the actions of molecules in biological samples, such as cells and tissues from human, animal, plant, and microbial
sources.
Our pressure cycling technology uses internally developed instrumentation that is capable of cycling pressure between ambient and ultra-
high levels - at controlled temperatures and specific time intervals - to rapidly and repeatedly control the interactions of bio-molecules, such as
DNA, RNA, proteins, lipids, and small molecules. Our laboratory instrument, the Barocycler®, and our internally developed consumables
product line, including PULSE (Pressure Used to Lyse Samples for Extraction) Tubes, other processing tubes, and application specific kits
(which include consumable products and reagents) together make up our PCT Sample Preparation System, or PCT SPS.
We have experienced negative cash flows from operations with respect to our pressure cycling technology business since our inception.
As of December 31, 2014, we did not have adequate working capital resources to satisfy our current liabilities. Based on our current
projections, including debt and equity financing subsequent to December 31, 2014, we believe our current and projected cash resources will
enable us to extend our cash for the foreseeable future.
These conditions cause substantial doubt regarding our ability to continue as a going concern due to the risk that we may not have
sufficient cash and liquid assets at December 31, 2014 to cover our operating and capital requirements for the next twelve-month period; and if
sufficient cash cannot be obtained, we would have to substantially alter, or possibly even discontinue, operations. The accompanying financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
The conditions described above could adversely affect our ability to obtain additional financing on favorable terms, if at all, and may
cause investors to have reservations about our long-term prospects, and may adversely affect our relationships with customers. If we cannot
successfully continue as a going concern, our stockholders may lose their entire investment in us. Although we have successfully completed
equity financings and reduced expenses in the past, we cannot assure you that our plans to address these matters in the future will be
successful. If we are not successful there is substantial doubt that we can continue as a going concern.
Management has developed a plan to continue operations. This plan includes further reductions in expenses and obtaining equity or debt
financing. Although we have successfully completed equity financings and reduced expenses in the past, we cannot assure that our plans to
address these matters in the future will be successful. Additional financing may not be available to us on a timely basis, if at all, or on terms
acceptable to us. In the event we are unable to raise sufficient funds on terms acceptable to us, we may be required to:
· severely limit or cease our operations or otherwise reduce planned expenditures and forego other business opportunities, which
could harm our business. The accompanying financial statements do not include adjustments that may be required in the event of
the disposal of assets or the discontinuation of the business;
· obtain financing with terms that may have the effect of diluting or adversely affecting the holdings or the rights of the holders of our
capital stock; or
· obtain funds through arrangements with future collaboration partners or others that may require us to relinquish rights to some or all
of our technologies or products.
Our common stock is listed on the Over-the-Counter exchange.
44
(2) Summary of Significant Accounting Policies
i. Principles of Consolidation
The consolidated financial statements include the accounts of Pressure BioSciences, Inc., and its wholly-owned subsidiary PBI BioSeq,
Inc. All intercompany accounts and transactions have been eliminated in consolidation.
ii. Use of Estimates
To prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America, we are required to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. In addition, significant estimates were made in projecting future cash flows to quantify impairment of assets, deferred tax
assets, the costs associated with fulfilling our warranty obligations for the instruments that we sell, and the estimates employed in our
calculation of fair value of stock options awarded, beneficial conversion features and derivative liabilities. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could
differ from the estimates and assumptions used.
iii. Revenue Recognition
Revenue is recognized when realized or earned when all the following criteria have been met: persuasive evidence of an arrangement
exists; delivery has occurred and risk of loss has passed to the customer; the seller’s price to the buyer is fixed or determinable; and
collectability is reasonably assured.
Our current instruments, the Barocycler NEP3229 and NEP2320, require a basic level of instrumentation expertise to set-up for initial
operation. To support a favorable first experience for our customers, we send a highly trained technical representative to the customer site to
install every Barocycler that we sell, lease, or rent through our domestic sales force. The installation process includes uncrating and setting up
the instrument, followed by introductory user training. Product revenue related to current Barocycler instrumentation is recognized upon the
completion of the installation and introductory training process of the instrumentation at the customer location, for domestic installations.
Product revenue related to sales of PCT instrumentation to our foreign distributors is recognized upon shipment through a common carrier. We
provide for the expected costs of warranty upon the recognition of revenue for the sales of our instrumentation. Our sales arrangements do not
provide our customers with a right of return. Product revenue related to the HUB440 and our consumable products such as PULSE Tubes,
MicroTubes, and application specific kits is recorded upon shipment through a common carrier. Shipping costs are included in sales and
marketing expense. Any shipping costs billed to customers are recognized as revenue.
We account for our lease agreements under the operating method. We record revenue over the life of the lease term and we record
depreciation expense on a straight-line basis over the thirty-six month estimated useful life of the Barocycler instrument. The depreciation
expense associated with assets under lease agreement is included in the “Cost of PCT products and services” line item in our consolidated
statements of operations. Many of our lease and rental agreements allow the lessee to purchase the instrument at any point during the term of
the agreement with partial or full credit for payments previously made. We pay all maintenance costs associated with the instrument during
the term of the leases.
Revenue from government grants is recorded when expenses are incurred under the grant in accordance with the terms of the grant award.
Under fixed fee government grants, the Company records revenue over the life of the government grant.
Revenue from service contracts is recorded ratably over the length of the contract.
Our transactions sometimes involve multiple elements (i.e., products and services). Revenue under multiple element arrangements is
recognized in accordance with FASB ASC 605-25 Multiple-Element Arrangements (“ASC 605”). When vendor specific objective evidence or
third party evidence of selling price for deliverables in an arrangement cannot be determined, the Company develops a best estimate of the
selling price to separate deliverables and allocates arrangement consideration using the relative selling price method. If an arrangement
includes undelivered elements that are not essential to the functionality of the delivered elements, we defer the fair value of the undelivered
elements to such time as they are delivered. Fair value is determined based upon the price charged when the element is sold separately. If
there is not sufficient evidence of the fair value of the undelivered elements the Company uses its best estimate of the value of those items and
recognizes revenues based on the relative values of the delivered and undelivered items. We provide certain customers with extended service
contracts with revenue recognized ratably over the life of the contract.
45
iv. Cash and Cash Equivalents
Our policy is to invest available cash in short-term, investment grade interest-bearing obligations, including money market funds, and
bank and corporate debt instruments. Securities purchased with initial maturities of three months or less are valued at cost plus accrued
interest, which approximates fair value, and are classified as cash equivalents.
v. Research and Development
Research and development costs, which are comprised of costs incurred in performing research and development activities including
wages and associated employee benefits, facilities, consumable products and overhead costs that are expensed as incurred. In support of our
research and development activities we utilize our Barocycler instruments that are capitalized as fixed assets and depreciated over their
expected useful life.
vi. Inventories
Inventories are valued at the lower of cost (average cost) or market (sales price). The cost of Barocyclers consists of the cost charged by
the contract manufacturer. The cost of manufactured goods includes material, freight-in, direct labor, and applicable overhead. The
composition of inventory as of December 31 is as follows:
Raw materials
Finished goods
Inventory reserve
Total
vii. Property and Equipment
$
2014
304,928
595,624
(50,000)
$
850,552
2013
147,290
639,386
(50,000)
736,676
$
Property and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes, depreciation is recognized
using the straight-line method, allocating the cost of the assets over their estimated useful lives of three years for certain laboratory equipment,
from three to five years for management information systems and office equipment, and three years for all PCT finished units classified as
fixed assets.
viii. Intangible Assets
We have classified as intangible assets, costs associated with the fair value of acquired intellectual property. Intangible assets, including
patents, are being amortized on a straight-line basis over sixteen years. We perform an annual review of our intangible assets for impairment.
When impairment is indicated, any excess of carrying value over fair value is recorded as a loss. An impairment analysis of intangible assets
was performed as of December 31, 2013. Based on this analysis, we concluded that no impairment of intangible assets had occurred.
46
ix. Long-Lived Assets and Deferred Costs
The Company’s long-lived assets and other assets are reviewed for impairment in accordance with the guidance of the FASB ASC 360-
10-05, Property, Plant, and Equipment, whenever events or changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future
undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset exceeds its fair value. Through December 31, 2014, the Company had not
experienced impairment losses on its long-lived assets. While our current and historical operating losses and cash flow are indicators of
impairment, we performed an impairment test at December 31, 2014 and determined that such long-lived assets were not impaired.
x. Concentrations
Credit Risk
Our financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents and trade
receivables. We have cash investment policies which, among other things, limit investments to investment-grade securities. We perform
ongoing credit evaluations of our customers, and the risk with respect to trade receivables is further mitigated by the fact that many of our
customers are government institutions and university labs. Allowances are provided for estimated amounts of accounts receivable which may
not be collected. At December 31, 2014 and 2013, we determined that no allowance against accounts receivable was necessary.
The following table illustrates the level of concentration of the below two groups within revenue as a percentage of total revenues during
the years ended December 31:
Top Five Customers
Federal Agencies
2014
2013
32%
6%
53%
33%
The following table illustrates the level of concentration of the below two groups within accounts receivable as a percentage of total
accounts receivable balance as of December 31:
Top Five Customers
Federal Agencies
Product Supply
2014
2013
86%
9%
86%
16%
BIT Group USA, formerly Source Scientific, LLC, has been our sole contract manufacturer for all of our PCT instrumentation. Until we
develop a broader network of manufacturers and subcontractors, obtaining alternative sources of supply or manufacturing services could
involve significant delays and other costs and challenges, and may not be available to us on reasonable terms, if at all. The failure of a supplier
or contract manufacturer to provide sufficient quantities, acceptable quality and timely products at an acceptable price, or an interruption of
supplies from such a supplier could harm our business and prospects.
xi. Computation of Loss per Share
Basic loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares
outstanding. Diluted loss per share is computed by dividing loss available to common shareholders by the weighted average number of
common shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been
issued. For purposes of this calculation, convertible preferred stock, common stock dividends, warrants to acquire preferred stock convertible
into common stock, and warrants and options to acquire common stock, are all considered common stock equivalents in periods in which they
have a dilutive effect and are excluded from this calculation in periods in which these are anti-dilutive. The following table illustrates our
computation of loss per share for the years ended December 31, 2014 and 2013.
47
Numerator:
Net loss
Beneficial conversion feature for preferred stock
Preferred dividends accrued
Preferred dividends paid in cash
Net loss applicable to common shareholders
Denominator for basic and diluted loss per share:
Weighted average common shares outstanding
Loss per common share - basic and diluted
For the Year Ended
December 31,
2014
2013
(1,495,415)
(143,771)
$ (4,612,540) $ (4,084,427)
(1,002,602)
(100,420)
(60,000)
$ (6,251,726) $ (5,247,449)
-
14,264,753
11,821,870
$
(0.44) $
(0.44)
The following table presents securities that could potentially dilute basic loss per share in the future. For all periods presented, the
potentially dilutive securities were not included in the computation of diluted loss per share because these securities would have been anti-
dilutive for the years ended December 31:
Stock options
Convertible debt
Common stock warrants
Convertible preferred stock:
Series D Convertible Preferred
Series G Convertible Preferred
Series H Convertible Preferred
Series H2 Convertible Preferred
Series J Convertible Preferred
Series K Convertible Preferred
xii. Accounting for Income Taxes
2014
3,406,250
5,453,571
19,182,201
2013
1,771,708
2,242,024
15,012,327
750,000
865,700
1,000,000
2,100,000
3,546,000
11,416,000
47,719,722
750,000
1,453,200
1,000,000
-
5,087,500
4,000,000
31,316,759
We account for income taxes under the asset and liability method, which requires recognition of deferred tax assets, subject to valuation
allowances, and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax
returns. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting and income tax purposes. The Company considers many factors when assessing the likelihood of future realization of our
deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the
carry-forward periods available to us for tax reporting purposes, and other relevant factors. A valuation allowance is established if it is more
likely than not that all or a portion of the net deferred tax assets will not be realized. If substantial changes in the Company’s ownership should
occur, as defined in Section 382 of the Internal Revenue Code, there could be significant limitations on the amount of net loss carry forwards
that could be used to offset future taxable income.
48
xiii. Accounting for Stock-Based Compensation
We maintain equity compensation plans under which incentive stock options and non-qualified stock options are granted to employees,
independent members of our Board of Directors and outside consultants. We recognize equity compensation expense over the requisite
service period using the Black-Scholes formula to estimate the fair value of the stock options on the date of grant.
Determining Fair Value of Stock Option Grants
Valuation and Amortization Method - The fair value of each option award is estimated on the date of grant using the Black-Scholes
pricing model based on certain assumptions. The estimated fair value of employee stock options is amortized to expense using the straight-line
method over the vesting period, which generally is over three years.
Expected Term - The Company uses the simplified calculation of expected life, described in the FASB ASC 718, Compensation-Stock
Compensation, as the Company does not currently have sufficient historical exercise data on which to base an estimate of expected term.
Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options
granted.
Expected Volatility - Expected volatility is based on the Company’s historical stock volatility data over the expected term of the award.
Risk-Free Interest Rate - The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield
currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term.
Forfeitures - As required by FASB ASC 718, Compensation-Stock Compensation, the Company records stock-based compensation
expense only for those awards that are expected to vest. The Company estimated a forfeiture rate of 5% for awards granted based on historical
experience and future expectations of options vesting. We used this historical rate as our assumption in calculating future stock-based
compensation expense.
The following table summarizes the assumptions we utilized for grants of stock options to the three sub-groups of our stock option
recipients during the twelve months ended December 31, 2014 and 2013:
Assumptions
Expected life
Expected volatility
Risk-free interest rate
Forfeiture rate
Expected dividend yield
Non-Employee
Board
Members
6.0 (yrs)
134.75%-
141.15%
CEO, other
Officers and
Employees
6.0 (yrs)
132.2%-
141.15%
1.90%-2.54% 1.09%-2.54%
5.00%
0.0%
5.00%
0.0%
We recognized stock-based compensation expense of $101,125 and $136,796 for the years ended December 31, 2014 and 2013,
respectively. The following table summarizes the effect of this stock-based compensation expense within each of the line items within our
accompanying Consolidated Statements of Operations for the years ended December 31:
Research and development
Selling and marketing
General and administrative
Total stock-based compensation expense
2014
2013
30,550
19,792
50,783
101,125
$
$
53,509
26,551
56,736
136,796
$
$
During the years ended December 31, 2014 and 2013, the total fair value of stock options awarded was $401,617 and $128,642,
respectively.
As of December 31, 2014, the total estimated fair value of unvested stock options to be amortized over their remaining vesting period was
$323,811. The non-cash, stock based compensation expense associated with the vesting of these options will be $181,992 in 2015, $82,761 in
2016, and $59,058 in 2017.
49
xiv. Fair Value of Financial Instruments
Due to their short maturities, the carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, and accrued
expenses approximate their fair value. Short-term and long-term liabilities are primarily related to liabilities transferred under contractual
arrangements with carrying values that approximate fair value.
xv. Advertising
Advertising costs are expensed as incurred. We did not spend anything on advertising in 2014 or 2013.
xvi. Fair Value Measurements
The Company follows the guidance of FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) as it related
to financial assets and financial liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.
The Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value hierarchy, which
classifies the inputs used in measuring fair values. These tiers include: Level 1, defined as observable inputs such as quoted prices for
identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to
develop its own assumptions.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement. The Company has determined that it does not have any financial assets measured at fair value and that its financial liabilities
are currently all classified within Level 3 in the fair value hierarchy.
50
The following tables set forth the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of December
31, 2014 and December 31, 2013. The assumptions used to determine fair value of the warrants are contained in the table in Note 9 of the
accompanying consolidated financial statements. The development of the unobservable inputs for Level 3 fair value measurements and fair
value calculations are the responsibility of the Company’s management.
Series D common stock Purchase Warrants
Series D common stock Purchase Warrants
Series D common stock Purchase Warrants
Series D common stock Purchase Warrants
July 7, 2014 note, conversion option
July 7, 2014 note, conversion option
August 28, 2014 note, conversion option
September 3, 2014 note, conversion option
September 10, 2014 note, conversion option
September 26, 2014 note, conversion option
November 10, 2014 note, conversion option
November 17, 2014 note, conversion option
Embedded conversion options
April 11, 2013 note, conversion option
June 26, 2013 note, conversion option
December 4, 2013 note, conversion option
December 23, 2013 note, conversion option
June 4, 2014 note, conversion option
July 7, 2014 note, conversion option
July 7, 2014 note, conversion option
August 28, 2014 note conversion option
September 3 2014 note, conversion option
September 10, 2014 note, conversion option
September 26, 2014 note, conversion option
November 10, 2014 note, conversion option
November 17, 2014 note, conversion option
Embedded conversion options
Fair value measurements at December 31, 2014 using:
December 31,
2014
159,875
$
Quoted prices in
active markets (Level
1)
Significant other
observable inputs
(Level 2)
$
-
$
Significant
unobservable
inputs (Level
3)
159,875
$
-
Fair value measurements at December 31, 2013 using:
December 31,
2013
344,570
$
Quoted prices in
active markets (Level
1)
Significant other
observable inputs
(Level 2)
$
-
$
Significant
unobservable
inputs (Level
3)
344,570
$
-
January 1,
2014
344,570
$
December 31,
2014
$
$
53,673
70,604
25,146
95,938
99,124
92,699
74,343
78,814
590,341
Change in
Fair Value
$
Reclassification
into equity
December
31, 2014
145,710 $
(330,405) $
159,875
January 1,
2013
160,812
Change in
Fair Value
$
183,758
$
December
31, 2013
$
344,570
Fair value measurements at December 31, 2014 using:
Quoted prices in
active
markets (Level 1)
Significant other
observable inputs
(Level 2)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Significant
unobservable
inputs (Level 3)
53,673
$
70,604
25,146
95,938
99,124
92,699
74,343
78,814
590,341
$
Dec. 31, 2014
-
-
-
-
-
53,673
70,604
25,146
95,938
99,124
92,699
74,343
78,814
590,341
-
-
-
-
-
-
-
-
(138,082) $
(61,425)
(120,831)
(320,338) $
Jan. 1, 2014
Issuance fair
value
Change in fair
value
Reclassification
into equity
-
-
-
-
57,071
64,233
89,926
36,892
122,340
129,710
140,060
136,021
122,431
898,684
$
$
$
7,348
6,118
(98,129)
48,804
(57,071)
(10,560)
(19,322)
(11,746)
(26,402)
(30,586)
(47,361)
(61,678)
(43,617)
(344,202) $
$
$
130,734
55,307
98,129
72,027
-
-
-
-
-
-
-
356,197
$
$
51
The assumptions for the binomial pricing model are represented in the table below for the conversion options reflected on a per share
common stock equivalent basis.
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per conversion option
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per conversion option
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per conversion option
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per conversion option
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per conversion option
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per conversion option
Conversion
options
revalued at
February 10,
2014
2
119.7%
0.04%
0.25
0.20
Conversion
options
revalued at
February 10,
2014
5
137.9%
0.07%
0.25
0.23
April 11, 2013
12
206.2%
0.10%
$
0.14
$
0.29
$
$
June 26, 2013
12
189.2%
0.13%
$
0.17
$
0.25
$
$
December 4,
2013
24
170.3%
0.30%
$
0.40
$
0.16
$
$
Conversion
options
revalued at
June 30, 2014
1
77.1%
0.02%
0.40
0.02
December 23,
2013
Conversion
options
revalued at
June 23, 2014
30
159.2%
0.73%
0.40
0.32
36
151.4%
0.77%
$
0.40
$
0.17
$
$
Conversion
options
revalued at Dec.
31, 2014
June 4, 2014
8
121.8%
0.07%
$
0.45
$
0.16
$
$
1
77.4%
0.03%
0.45
0.00
Conversion
options
revalued at
Dec. 31, 2014
6
114.7%
0.12%
0.16
0.11
July 7, 2014
12
117.9%
0.12%
$
0.21
$
0.18
$
$
52
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per conversion option
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per conversion option
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per conversion option
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per conversion option
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per conversion option
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per conversion option
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per conversion option
Conversion
options
revalued at
Dec. 31, 2014
6
114.7%
0.12%
0.17
0.11
July 7, 2014
12
117.9%
0.12%
$
0.21
$
0.18
$
$
August 28,
2014
6
104.4%
0.05%
$
0.14
$
0.15
$
$
Conversion
options
revalued at
Dec. 31, 2014
2
121.7%
0.04%
0.15
0.11
Conversion
options
revalued at
Dec.31, 2014
32
154.1%
0.88%
0.35
0.19
Sept. 3, 2014
36
153.8%
0.99%
$
0.35
$
0.24
$
$
Conversion
options
revalued at
Dec. 31, 2014
8
106.6%
0.18%
0.14
0.14
Conversion
options
revalued at
Dec. 31, 2014
9
106.2%
0.17%
0.15
0.13
Conversion
options
revalued at
Dec. 31, 2014
8
106.6%
0.18%
0.14
0.14
Conversion
options
revalued at
Dec. 31, 2014
10
107.1%
0.15%
0.17
0.13
Sept. 10, 2014
12
117.6%
0.12%
$
0.13
$
0.17
$
$
Sept. 26, 2014
12
116.6%
0.11%
$
0.16
$
0.19
$
$
Nov. 10, 2014
10
104.2%
0.10%
$
0.13
$
0.23
$
$
Nov. 17, 2014
12
117.9%
0.12%
$
0.17
$
0.20
$
$
53
(3) Property and Equipment, net
Property and equipment as of December 31, 2014 and 2013 consisted of the following components:
Laboratory and manufacturing equipment
Office equipment
Leasehold improvements
PCT collaboration, demonstration and leased systems
Total property and equipment
Less accumulated depreciation
Net book value
December 31,
$
2014
226,081
149,459
8,117
461,858
845,515
(809,490)
$
36,025
2013
226,081
142,323
8,117
461,858
838,379
(780,277)
58,102
$
$
Depreciation expense for the years ended December 31, 2014 and 2013 was $29,213 and $30,931, respectively.
(4) Intangible Assets, net
Intangible assets as of December 31, 2014 reflect the purchase price attributable to patents in connection with the 1998 acquisition of
BioSeq, Inc. and the PCT business. Acquired PCT patents were being amortized to expense on a straight line basis at the rate of $48,632 per
year over their estimated remaining useful lives of approximately 6 years. We performed a review of our intangible assets for impairment.
When impairment is indicated, any excess of carrying value over fair value is recorded as a loss. We have concluded that there is no
impairment of intangible assets. Intangible assets at December 31, 2014 and 2013 consisted of the following:
PCT Patents
Less accumulated amortization
Net book value
December 31,
2014
778,156
$
(778,156)
$
-
2013
778,156
(741,658)
36,498
$
$
Amortization expense for the year ended December 31, 2013 was $48,632 and for the year ended December 31, 2014 was $36,498, at
which time the assets were fully amortized.
(5) Retirement Plan
We provide all of our employees with the opportunity to participate in our retirement savings plan. Our retirement savings plan has been
qualified under Section 401(k) of the Internal Revenue Code. Eligible employees are permitted to contribute to the plan through payroll
deductions within statutory limitations and subject to any limitations included in the plan. During 2014 and 2013 we contributed $10,022 and
$10,377, respectively, in the form of discretionary Company-matching contributions.
(6) Income Taxes
Tax positions must meet a “more likely than not” recognition threshold at the effective date to be recognized. At December 31, 2014
and 2013, the Company did not have any uncertain tax positions. No interest and penalties related to uncertain tax positions were arrived at
December 31, 2014 and 2013.
We did not record an income tax benefit or provision for the year ended December 31, 2014.
54
Significant items making up the deferred tax assets and deferred tax liabilities as of December 31, 2014 and December 31, 2013 are as
follows:
Current deferred taxes
Inventories
Other accruals
Less: valuation allowance
Total current deferred tax assets
Long term deferred taxes:
Accelerated tax depreciation
Non-cash, stock-based compensation, nonqualified
Goodwill and intangibles
Operating loss carry forwards and tax credits
Less: valuation allowance
Total long term deferred tax assets (liabilities), net
Total net deferred tax liabilities
$
$
$
$
December 31,
2014
2013
$
19,640
21,818
(41,458)
$
-
19,640
23,050
(42,690)
-
$
12,162
440,614
-
9,720,260
(10,173,036)
-
-
$
29,511
387,708
(14,337)
8,938,681
(9,341,563)
-
-
A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized.
Accordingly, a valuation allowance was established in 2014 and 2013 for the full amount of our deferred tax assets due to the uncertainty of
realization. We believe based on our projection of future taxable operating income for the foreseeable future, it is more likely than not that we
will not be able to realize the benefit of the deferred tax asset at December 31, 2014.
We have net operating loss carry-forwards for federal income tax purposes of $22,260,000 as of December 31, 2014. Included in these
numbers are loss carry-forwards that were obtained through the acquisition of BioSeq, Inc. and are subject to Section 382 NOL limitations.
These net operating loss carry-forwards expire at various dates from 2015 through 2035.
We had net operating loss carry-forwards for state income tax purposes of approximately $16,496,000 at December 31, 2014. These net
operating loss carry-forwards expire at various dates from 2015 through 2034.
We have research and development tax credit carryforwards for federal income tax purposes of approximately
$1,019,000 as of December 31, 2014 and research and development tax credit carryforwards for state income tax purposes of approximately
$165,000 as of December 31, 2014. The federal credit carryforwards expire at various dates from 2015 through 2034. The state credit
carryforwards expire at various dates from 2014 through 2028.
In addition, we have federal alternative minimum tax credit carryforwards for federal income tax purposes of approximately $217,000 as
of December 31, 2014. These credits do not expire.
Our effective income tax (benefit) provision rate was different than the statutory federal income tax (benefit) provision rate as follows for
the years ended December 31:
Federal tax provision rate
Permanent differences
State tax expense
Refundable AMT and R&D tax credit
Net operating loss carry back
Valuation allowance
Effective income tax provision
(7) Commitments and Contingencies
Operating Leases
2014
2013
34%
(2) %
0%
0%
0%
(32) %
0%
34%
(3) %
0%
0%
0%
(31) %
0%
Our corporate office is currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375. We are currently paying
approximately $4,800 per month for our corporate office. On December 31, 2014 the lease was amended to extend the expiration date to
December 31, 2015 at the rate of $4,800 per month.
55
Effective January 1, 2010, we entered into a three-year lease agreement with the University of Massachusetts in Boston, pursuant to which
we are leasing laboratory and office space on campus at the university for research and development activities. We paid $5,000 per month for
the use of these facilities. In August 2014 the landlord exercised their right to terminate the lease.
On November 1, 2014 we signed a three year lease for laboratory and office space in Medford, Massachusetts. The lease calls for lease
payments of $3,056 per month subject to annual Cost of Living increases.
Following is a schedule by years of future minimum rental payments required under operating leases with initial or remaining non-
cancelable lease terms in excess of one year as of December 31, 2014:
2015
Thereafter
Total minimum payments required
$ 94,272
73,344
$167,616
Royalty Commitments
BioMolecular Assays, Inc.
In 1996, we acquired our initial equity interest in BioSeq, Inc., which at the time was developing our original pressure cycling technology.
BioSeq, Inc. acquired its pressure cycling technology from BioMolecular Assays, Inc. under a technology transfer and patent assignment
agreement. In 1998, we purchased all of the remaining outstanding capital stock of BioSeq, Inc., and at such time, the technology transfer and
patent assignment agreement was amended to require us to pay BioMolecular Assays, Inc. a 5% royalty on our sales of products or services
that incorporate or utilize the original pressure cycling technology that BioSeq, Inc. acquired from BioMolecular Assays, Inc. We are also
required to pay BioMolecular Assays, Inc. 5% of the proceeds from any sale, transfer or license of all or any portion of the original pressure
cycling technology. These payment obligations terminate in 2016. During the fiscal years ended December 31, 2014 and 2013, we incurred
$31,835 and $23,785 in royalties, respectively.
In connection with our acquisition of BioSeq, Inc., we licensed certain limited rights to the original pressure cycling technology back to
BioMolecular Assays, Inc. This license is non-exclusive and limits the use of the original pressure cycling technology by BioMolecular
Assays, Inc. solely for molecular applications in scientific research and development and in scientific plant research and development.
BioMolecular Assays, Inc. is required to pay us a royalty equal to 20% of any license or other fees and royalties, but not including research
support and similar payments, it receives in connection with any sale, assignment, license or other transfer of any rights granted to
BioMolecular Assays, Inc. under the license. BioMolecular Assays, Inc. must pay us these royalties until the expiration of the patents held by
BioSeq, Inc. in 1998, which we anticipate will be 2016. We have not received any royalty payments from BioMolecular Assays, Inc. under
this license.
Battelle Memorial Institute
In December 2008, we entered into an exclusive patent license agreement with the Battelle Memorial Institute ("Battelle"). The licensed
technology is described in the patent application filed by Battelle on July 31, 2008 (US serial number 12/183,219). This application includes
subject matter related to a method and a system for improving the analysis of protein samples, including through an automated system utilizing
pressure and a pre-selected agent to obtain a digested sample in a significantly shorter period of time than current methods, while maintaining
the integrity of the sample throughout the preparatory process. Pursuant to the terms of the agreement, we paid Battelle a non-refundable
initial fee of $35,000. In addition to royalty payments on net sales on “licensed products”, we are obligated to make minimum royalty
payments for each year that we retain the rights outlined in the patent license agreement and we are required to have our first commercial sale
of the licensed products within one year following the issuance of the patent covered by the licensed technology. After re-negotiating the
contract in 2013 our only obligation for 2014 was a royalty payment of approximately $2,900. The minimum annual royalty was $4,025 for
2013.
Target Discovery Inc.
In March 2010, we signed a strategic product licensing, manufacturing, co-marketing, and collaborative research and development
agreement with Target Discovery Inc. (“TDI”). Under the terms of the agreement, we have been licensed by TDI to manufacture and sell a
highly innovative line of chemicals used in the preparation of tissues for scientific analysis ("TDI reagents"). The TDI reagents were designed
for use in combination with our pressure cycling technology. The companies believe that the combination of PCT and the TDI reagents can fill
an existing need in life science research for an automated method for rapid extraction and recovery of intact, functional proteins associated
with cell membranes in tissue samples. We did not incur any royalty obligation under this agreement in 2014 or 2013.
56
Severance and Change of Control Agreements
Each of Mr. Schumacher, and Drs. Ting, Lazarev, and Lawrence, executive officers of the Company, are entitled to receive a severance
payment if terminated by us without cause. The severance benefits would include a payment in an amount equal to one year of such executive
officer’s annualized base salary compensation plus accrued paid time off. Additionally, the officer will be entitled to receive medical and
dental insurance coverage for one year following the date of termination.
Each of these executive officers, other than Mr. Schumacher, is entitled to receive a change of control payment in an amount equal to one
year of such executive officer’s annualized base salary compensation, accrued paid time off, and medical and dental coverage, in the event of a
change of control of the Company. In the case of Mr. Schumacher, this payment would be equal to two years of annualized base salary
compensation, accrued paid time off, and two years of medical and dental coverage. The severance payment is meant to induce the
aforementioned executives to remain in the employ of the Company, in general; and particularly in the occurrence of a change in control, as a
disincentive to the control change.
Promissory Note
On November 4, 2011, the Company entered into an agreement with a former placement agent, pursuant to which the Company and the
placement agent released each other of their respective obligations under a prior investment banking agreement. In connection with this
agreement, the Company issued the placement agent a promissory note with an original principal amount of $150,000 and an original maturity
date of May 4, 2012. On February 6, 2014 the $75,000 principal balance remaining and $14,832 of accrued and unpaid interest were paid off
in cash.
Convertible Debt
Loans in the aggregate amount of$155,000 were received from two individuals in 2013. We accrued interest at a rate of 6% on the
loans. These loans, along with $863,000 of other prior outstanding loans and unpaid interest, were converted to the Company 's Series J
Convertible Preferred Shares in February 2013.
On April 11 , 2013, we signed a promissory note in the amount of$275,000. The lender paid $125,000, net of $12,500 of original issue
discount, upon closing of the note. The lender paid an additional $50,000, net of$5,000 original issue discount, on June 26, 2013. The
balance ofthe Consideration shall be paid in the amounts and the dates as the lender chooses. The note and unpaid interest on the note are
due and payable one year from the effective date of each payment. The lender has the right to convert all or part of the unpaid principal and
interest into common stock at a conversion price of 60% of the lowest trade price in the 25 trading days prior to conversion after six months
from the effective date of each closing. The Company has the right to repay the notes at an y time within six months of the effective date of
each closing. If the Company repays the note within 90 days of the effective date interest is 0%. If the note is not repaid within the 90 days
a onetime interest charge of 12% will be applied. The Company has reserved at least 6,000,000 shares of common stock for conversion
under this note. The Compan y evaluated the terms of this note in accordance with ASC 815-40, Derivatives and Hedging Contracts in
Entity's Own Stock. The Company determined that the conversion feature met the definition of a liability and therefore, bifurcated the
conversion feature as a derivative liability. The derivative liability is measured at the end of each reporting period and the change in fair
value is recorded as other expense or income in the statement of operations. The fair value of the conversion feature was $186,041 at
December 31, 2013 and reflected in the conversion option liability line in the consolidated balance sheet. On October 10, 2013, this note
was amended to change the lenders right to convert and the borrower 's right to repay to December 10, 2013. On December 10, 2013, this
note was amended to change the lenders right to convert and the borrower's right to repay to February 10, 2014.
The proceeds from the convertible debt issued on April 11, 2013, were allocated between the host debt instrument and the convertible
option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula, resulting
in an allocation of$274,840 to the convertible option and accounted for as a liability in the Company's consolidated balance sheet. In
accordance with the provisions of ASC815-40, the entire gross proceeds of$137,500 was offset by a debt discount of$137,500 which will
be amortized to nterest expense over the twelve month life of the debt. The additional $149,840 adjustment between the convertible option
liability and the debt discount was charged directly to other expense.
The proceeds from the convertible debt issued on June 26, 2013, were allocated between the host debt instrument and the convertible
option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula, resulting
in an allocation of $84,146 to the convertible option and accounted for as a liability in the Company 's consolidated balance sheet. In
accordance with the provisions of ASC815-40, the entire gross proceeds of$55,000 was offset by a debt discount of $55,000 which will be
amortized to interest expense over the twelve month life of the debt. The additional $34,146 adjustment between the convertible option
liability and the debt discount was charged directl y to other expense.
So long as the note is outstanding, the Company shall notify the lender of the issuance of any security with a term more favorable to
the holder, and the lender may at its option, include the terms as a part of the transaction documents. Both the April II , 2013 note and the
June 26, 2013 note were paid off in February 2014.
On May 24, 2013, we entered into a Convertible Redeemable Note. The lender paid $97,500, net of$2,500 in legal fees, on the closing
date. The note does not bear interest. The $100,000 principal is due on May 24, 2015. At any time six months after the closing date, the
lender at its option may convert part, or all, of the note then outstanding into shares of the Company's common stock at a conversion price
of70% of the average weighted average price of the common stock for the 10 trading days preceding the conversion date. The Company
shall have the right to redeem the note at 120% ofthe unpaid principal if paid within 90 days ofthe issuance day, 130% of the unpaid
principal ifrepaid between 91 and 180 days following the issuance day and 150% at any time thereafter. The Company has reserved
1,000,000 shares of common stock for conversion under this note. The Company determined that the conversion feature met the definition
of a liability and therefore, bifurcated the conversion feature as a derivative liability. The derivative liability is measured at the end of each
reporting period and the change in fair value is recorded as other expense or income in the statement of operations.
57
The proceeds from the convertible debt issued on May 24, 2013, were allocated between the host debt instrument and the convertible
option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula,
resulting in an allocation of $122,223 to the convertible option and accounted for as a liability in the Company's consolidated balance
sheet. In accordance with the provisions of ASC815-40, the entire gross proceeds of $100,000 is offset by a debt discount of $100,000
which will be amortized to interest expense over the twenty-four month life of the debt. The additional $24,723 adjustment between the
convertible option liability and the debt discount was charged directly to other expense.
The entire balance of the debt was repaid on November 22, 2013 and the fair value of the conversion option liability remaining on
the balance sheet in the amount of $103,521 was reclassified to additional paid in capital.
On June 6, 2013, we signed a convertible debenture in the amount of$500,000. The lender paid an initial payment of$213,000 net of a
"fmder's fee" discount of$25,000 and $12,000 in legal fees, on the closing date. The lender has the right, any time after six months from
the issue date to convert any or part of the outstanding and unpaid principal into shares of the Company's common stock at a price of
$0.40 per share subject to adjustments for stock splits, stock dividends or rights offerings. The Company has the right to prepay the
debenture for a payment of 120% of the outstanding principal plus accrued and unpaid interest. The Company is required to reserve at
least 2.5 times the number of shares actually issuable upon full conversion of this debenture. The Company determined that the
conversion feature met the definition of a liability in accordance with ASC 815-40 and therefore bifurcated the conversion feature as a
derivative liability. The derivative liability is measured at the end of each reporting period and the difference in fair value is recorded as
other expense or income in the statement of operations.
The proceeds from the convertible debt issued on June 6, 2013, were allocated between the host debt instrument and the convertible
option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula,
resulting in an allocation of$158,715 to the convertible option and accounted for as a liability in the Company's condensed consolidated
balance sheet. In accordance with the provisions of ASC 815-40, the gross proceeds of $250,000 was offset by a debt discount of
$195,715 which will be amortized to interest expense over the twelve month life of the debt.
On December 26, 2013 the Company entered into a settlement agreement with the lender resulting in the Company paying the lender
$300,000 in full satisfaction of the original debenture. The conversion option liability remaining on the balance sheet in the amount of
$38,180 was reclassified to additional paid in capital.
On August 8, 2013 and October 10, 2013, we received $160,000 and $250,000, respectively in a six-month note from an existing
shareholder. Terms ofthe note include 18% annual interest, a right to convert the note into the next equity transaction of the Company, at
the conversion rate of the equity offering, and a three-year warrant to acquire 160,000 shares of common stock and 250,000 shares of
common stock, respectively at $0.40 per share. The relative fair value of the warrants was determined to be $28,722 and $33,824,
respectively, which was accounted for as a debt discount and amortized to interest expense over the six-month life of the note. Both of
these notes and the accrued interest were converted to our Series K Convertible Preferred Stock on December 12, 2013.
On December 4, 2013, we signed a convertible debenture in the amount of$223,000. The lender paid an initial payment of $200,000
net of a "original issue" discount of $20,000 and $3,000 in legal fees, on the closing date. The lender has the right at any time from the
issue date to convert all or part of the outstanding and unpaid principal into shares of the Company 's common stock at a price of$0.40 per
share subject to adjustments for stock splits, stock dividends or rights offerings. The Company has the right to prepay the debenture for a
payment of 120% of the outstanding principal plus accrued and unpaid interest. The Company is required to reserve at least 4 times the
number of shares actually issuable upon full conversion of this debenture. The Company determined that the conversion feature met the
definition of a liability in accordance with ASC 815-40 and therefore bifurcated the conversion feature as a derivative liability. The
derivative liability is measured at the end of each reporting period and the difference in fair value is recorded as other expense or income
in the statement of operations. The fair value of the conversion feature was $98,129 at December 31, 2013 and reflected in the conversion
option liability line in the consolidated balance sheet. In addition the lender received a warrant to purchase 70,000 shares of the
Company's common stock at an exercise price of $0.3125 per share. The warrants were valued at $11 ,100 which was allocated to debt
discount and will be amortized to interest expense over the twenty-four month life of the debt
58
The proceeds from the convertible debt issued on December 4, 2013, were allocated between the host debt instrument and the
convertible option based on the residual method. The estimated fair value of the convertible option was determined using a binomial
formula, resulting in an allocation of$77,388 to the convertible option and accounted for as a liability in the Company's consolidated
balance sheet. In accordance with the provisions of ASC 815-40, the gross proceeds of $223,000 was offset by a debt discount of $11
1,488 which will be amortized to interest expense over the twelve month life of the debt.
On December 23,2013, we signed a convertible debenture in the amount of$150,000. The lender paid an initial payment of $125,000
net of a "original issue" discount of $15,000 and $10,000 in legal fees, on the closing date the lender has the right, any time from the issue
date, to convert any or part of the outstanding and unpaid principal into shares of the Company 's common stock at a price of$0.40 per
share subject to adjustments for stock splits, stock dividends or rights offerings. The Company shall have the right to prepay the
debenture for a payment of 120% of the outstanding principal plus accrued and unpaid interest. The Company is required to reserve at
least 3 times the number of shares actually issuable upon full conversion of this debenture. The Company determined that the conversion
feature met the definition of a liability in accordance with ASC 815-40 and therefore bifurcated the conversion feature as a derivative
liability. The derivative liability is measured at the end of each reporting period and the change in fair value is recorded as other expense
or income in the statement of operations. The fair value of the conversion feature was $72,027 at December 31, 2013 and reflected in the
conversion option liability line in the consolidated balance sheet. Tn addition the lender received 75,000 shares of Company restricted
common stock, of which the fair value of $17,250 was charged to debt discount and will be amortized to interest expense over the thirty-
six month life of the debt.
The proceeds from the convertible debt issued on December 23, 2013, were allocated between the host debt instrument and the
convertible option based on the residual method. The estimated fair value of the convertible option was determined using a binomial
formula, resulting in an allocation of$59,903 to the convertible option and accounted for as a liability in the Company's consolidated
balance sheet. In accordance with the provisions of ASC815-40, the gross proceeds of$150,000 was offset by a debt discount
of$102,153 which will be amortized to interest expense over the thirty-six month life of the debt.
A loan in the aggregate amount of $300,000 was received from one individual on January 7, 2014. We granted an original issue discount
equal to $30,000 and warrants to purchase 270,000 shares of common stock at $0.3125 per share. The loan was converted to the Company’s
Series K Convertible Preferred Shares in January 2014.
On May 30, 2014, we signed a convertible debenture in the amount of $400,000. The lender paid an initial payment of $150,000 net of
an original issue discount of $12,162 on June 4, 2014. A one-time interest charge of 9% will be applied to the principal balance. The lender
has the right, at any time from the issue date to convert any or part of the outstanding and unpaid principal into shares of the Company’s
common stock at a price of $0.45 per share subject to adjustments for stock splits, stock dividends or rights offerings. The Company shall
have the right to prepay the debenture for a payment of the outstanding principal plus unpaid interest at any time on or before six months after
the effective date. The Company is required to reserve at least 650,000 shares of common stock for full conversion of this debenture. The
maturity date is eight months after the effective date of each payment. The Company determined that the conversion feature met the definition
of a liability in accordance with ASC 815-40 and therefore bifurcated the conversion feature and account for it as a derivative liability. The
fair value of the conversion feature was accounted for as a note discount and will be amortized to interest expense over the life of the loan.
The fair value of the conversion feature was $0 at December 31, 2014 and reflected in the conversion option liability line in the consolidated
balance sheet.
The proceeds from the convertible debt issued on June 4, 2014, were allocated between the host debt instrument and the convertible
option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula, resulting in
an allocation of $57,071 to the convertible option and accounted for as a liability in the Company’s consolidated balance sheet. In accordance
with the provisions of ASC 815-40, the gross proceeds of $162,162 is offset by a debt discount of $69,233 which will be amortized to interest
expense over the eight month life of the debt.
On July 7, 2014, we signed two convertible debentures in the amount of $180,000. The lenders paid initial payments of $66,750 and
$100,000 net of fees of $8,250 and $5,000 on July 7, 2014. The Company also incurred a $6,000 finder’s fee. Interest accrues at the rate of
4% on the outstanding principal balance. They have the right, at any time after 180 days from the issue date to convert any or part of the
outstanding and unpaid principal and interest into shares of the Company’s common stock at a price of 65% of the lowest VWAP price of the
Company’s shares during the 15 day period prior to conversion subject to adjustments for stock splits, stock dividends or rights offerings. The
Company shall have the right to prepay the debenture for a payment of the outstanding principal plus unpaid interest at any time on or before
six months after the effective date. If the notes are prepaid before the 90th day following the effective date the prepayment is 119% of the
principal amount plus accrued and unpaid interest and if prepaid between the 91st day and 180th day from the effective date the prepayment is
133% of the principal amount plus accrued and unpaid interest. The maturity date is twelve months after the effective date of each payment.
The Company determined that the conversion features on each note met the definition of a liability in accordance with ASC 815-40 and
therefore bifurcated the conversion feature and account for it as a derivative liability. The fair value of the conversion features are accounted
for as a note discount and will be amortized to interest expense over the life of the loans. The fair value of the conversion features was
$124,275 at December 31, 2014 and reflected in the conversion option liability line in the consolidated balance sheet.
59
The proceeds from the convertible debt issued on July 7, 2014, were allocated between the host debt instrument and the convertible
option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula, resulting in
an allocation of $154,159 to the convertible option and accounted for as a liability in the Company’s consolidated balance sheet. In
accordance with the provisions of ASC 815-40, the gross proceeds of $180,000 is offset by a debt discount of $173,409 which will be
amortized to interest expense over the twelve month life of the debt.
The outstanding principal balance, prepayment penalties and all outstanding accrued interest on these two notes, totaling $242,973, were
paid back in January 2015.
On August 28, 2014 the Company signed a note with a lender for $35,000 and received $32,900 in cash after deducting $2,100 in fees.
The Company has the right to prepay the note prior to the maturity date of February 28, 2015 for $45,500. If the note is not prepaid by the
maturity date the note can be converted to Company common shares for 60% of the lowest intra-day trading price for the 15 days prior to the
conversion. The difference between the pre-payment price of $45,500 and the cash received is being accounted for as debt discount and
amortized to interest expense over the six month life of the note. The Company determined that the conversion features on each note met the
definition of a liability in accordance with ASC 815-40 and therefore bifurcated the conversion feature and accounted for it as a derivative
liability. The fair value of the conversion features are accounted for as a note discount and will be amortized to interest expense over the life
of the loans. The fair value of the conversion features was $25,146 at December 31, 2014 and reflected in the conversion option liability line
in the consolidated balance sheet.
The proceeds from the convertible debt issued on August 28, 2014, were allocated between the host debt instrument and the convertible
option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula, resulting in
an allocation of $36,892 to the convertible option and accounted for as a liability in the Company’s consolidated balance sheet. In accordance
with the provisions of ASC 815-40, the gross proceeds of $45,500 is offset by a debt discount of $45,500 which will be amortized to interest
expense over the twelve month life of the debt. The residual amount of debt discount of $3,992 in excess of the gross proceeds was charged to
other income.
The outstanding principal balance and the prepayment penalty, totaling $45,500, were paid off in February of 2015.
On September 3, 2014, we signed a convertible debenture in the amount of $175,000. The lender paid an initial payment of $150,000 net
of an original issue discount of $17,500 on September 3, 2014 and fees of $7,500. The Company also paid fees of $8,000 and gave the lender
75,000 shares of Company common stock valued at $21,750. Interest will not accrue on this note. The lender has the right, at any time within
180 days from the issue date to convert any or part of the outstanding and unpaid principal into shares of the Company’s common stock at a
price of $0.35 per share subject to adjustments for stock splits, stock dividends or rights offerings. After 180 days from the issue date the note
can be converted at 65% of the lowest closing price for the 20 days preceding the conversion. The Company shall have the right to prepay the
debenture for a payment of 100% of the outstanding principal at any time on or before 90 days after the effective date. Prepayment after 90
days are subject to a premium ranging from 120% - 140% of the outstanding principal. The maturity date is twelve months after the effective
date of each payment. The Company determined that the conversion feature met the definition of a liability in accordance with ASC 815-40
and therefore bifurcated the conversion feature and account for it as a derivative liability. The fair value of the conversion feature was
accounted for as a note discount and will be amortized to interest expense over the life of the loan. The fair value of the conversion feature
was $95,938 at December 31, 2014 and reflected in the conversion option liability line in the consolidated balance sheet.
The proceeds from the convertible debt issued on September 3, 2014, were allocated between the host debt instrument and the convertible
option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula, resulting in
an allocation of $122,340 to the convertible option and accounted for as a liability in the Company’s consolidated balance sheet. In
accordance with the provisions of ASC 815-40, the gross proceeds of $175,000 is offset by a debt discount of $169,090 which will be
amortized to interest expense over the twelve month life of the debt.
60
The outstanding principal balance and the prepayment penalty on this note, totaling $218,750, were paid back in March 2015.
On September 10, 2014, we signed a convertible debenture in the amount of $175,000. The lender paid an initial payment of $92,000 net
of an $8,000 fee on September 10, 2014. Interest will accrue at the rate of 8% on the unpaid principal balance. The lender has the right, at
any time after 180 days from the issue date to convert any or part of the outstanding and unpaid principal and accrued interest into shares of
the Company’s common stock at a price equal to 55% of the lowest closing price for the 20 day period preceding the conversion, subject to
adjustments for stock splits, stock dividends or rights offerings. The Company shall have the right to prepay the debenture for a payment of
the outstanding principal plus unpaid interest at any time from the effective date to the maturity date for 135% of the principal. The maturity
date is twelve months after the effective date of each payment. The Company determined that the conversion feature met the definition of a
liability in accordance with ASC 815-40 and therefore bifurcated the conversion feature and account for it as a derivative liability. The fair
value of the conversion feature was accounted for as a note discount and will be amortized to interest expense over the life of the loan. The
fair value of the conversion feature was $99,124 at December 31, 2014 and reflected in the conversion option liability line in the consolidated
balance sheet.
The proceeds from the convertible debt issued on September 10, 2014, were allocated between the host debt instrument and the
convertible option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula,
resulting in an allocation of $129,710 to the convertible option and accounted for as a liability in the Company’s consolidated balance sheet. In
accordance with the provisions of ASC 815-40, the gross proceeds of $100,000 is offset by a debt discount of $100,000 which will be
amortized to interest expense over the twelve month life of the debt. The residual amount of debt discount of $37,710 in excess of the
principal of $100,000 is charged to other expense on the consolidated statement of operations.
The outstanding principal balance, prepayment penalties and all outstanding accrued interest on this note, totaling $138,978, were paid
back in March 2015.
On September 26, 2014, we signed a convertible debenture in the amount of $113,000. The lender paid an initial payment of $101,660
net of an original issue discount of $11,340. A one-time interest charge of 9% will be applied to the principal balance. The lender has the
right, at any time after 179 days from the issue date, to convert any or part of the outstanding and unpaid principal into shares of the
Company’s common stock at a 40% discount to the three lowest trading prices in the ten days preceding the conversion subject to adjustments
for stock splits, stock dividends or rights offerings. The Company shall have the right to prepay the debenture for a payment of 135% of the
outstanding principal plus unpaid interest at any time on or before six months after the effective date. The Company is required to reserve at
least 650,000 shares of common stock for full conversion of this debenture. The maturity date is eight months after the effective date of each
payment. The Company determined that the conversion feature met the definition of a liability in accordance with ASC 815-40 and therefore
bifurcated the conversion feature and account for it as a derivative liability. The fair value of the conversion feature was accounted for as a
note discount and will be amortized to interest expense over the life of the loan. The fair value of the conversion feature was $92,699 at
December 31, 2014 and reflected in the conversion option liability line in the consolidated balance sheet.
The proceeds from the convertible debt issued on September 26, 2014, were allocated between the host debt instrument and the
convertible option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula,
resulting in an allocation of $140,060 to the convertible option and accounted for as a liability in the Company’s consolidated balance sheet.
In accordance with the provisions of ASC 815-40, the gross proceeds of $113,000 is offset by a debt discount of $113,000 which will be
amortized to interest expense over the twelve month life of the debt. The residual amount of debt discount of $38,400 in excess of the
principal of $113,000 is charged to other expense on the consolidated statement of operations.
On November 10, 2014, we took an additional $75,000 advance on the $175,000 note we signed on September 10, 2014. Interest will
accrue at the rate of 8% on the unpaid principal balance. The lender has the right, at any time after 180 days from the issue date to convert
any or part of the outstanding and unpaid principal and accrued interest into shares of the Company’s common stock at a price equal to 55% of
the lowest closing price for the 20 day period preceding the conversion, subject to adjustments for stock splits, stock dividends or rights
offerings. The Company shall have the right to prepay the debenture for a payment of the outstanding principal plus unpaid interest at any
time from the effective date to the maturity date for 135% of the principal. The maturity date is twelve months after the effective date of each
payment. The Company determined that the conversion feature met the definition of a liability in accordance with ASC 815-40 and therefore
bifurcated the conversion feature and account for it as a derivative liability. The fair value of the conversion feature was accounted for as a
note discount and will be amortized to interest expense over the life of the loan. The fair value of the conversion feature was $74,343 at
December 31, 2014 and reflected in the conversion option liability line in the consolidated balance sheet.
The proceeds from the convertible debt advanced on November 10, 2014, were allocated between the host debt instrument and the
convertible option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula,
resulting in an allocation of $136,021 to the convertible option and accounted for as a liability in the Company’s consolidated balance sheet. In
accordance with the provisions of ASC 815-40, the gross proceeds of $75,000 is offset by a debt discount of $6,000 which will be amortized
to interest expense over the twelve month life of the debt. The residual amount of debt discount of $67,021 in excess of the principal of
$75,000 is charged to other expense on the consolidated statement of operations.
On November 17, 2014, we signed a convertible debenture in the amount of $105,000. The lender paid an initial payment $100,000 net
of an original debt discount of $5,000. Interest accrues at the rate of 4% on the outstanding principal balance. The lender has the right, at any
time after 180 days from the issue date to convert any or part of the outstanding and unpaid principal and interest into shares of the Company’s
common stock at a price of 65% of the lowest VWAP price of the Company’s shares during the 15 day period prior to conversion subject to
adjustments for stock splits, stock dividends or rights offerings. The Company shall have the right to prepay the debenture for a payment of
the outstanding principal plus unpaid interest at any time on or before six months after the effective date. If the note is prepaid before the 90th
day following the effective date the prepayment is 119% of the principal amount plus accrued and unpaid interest and if prepaid between the
91st day and 180th day from the effective date the prepayment is 133% of the principal amount plus accrued and unpaid interest. The maturity
date is twelve months after the effective date of each payment. The Company determined that the conversion features on the note met the
definition of a liability in accordance with ASC 815-40 and therefore bifurcated the conversion feature and account for it as a derivative
liability. The fair value of the conversion features is accounted for as a note discount and will be amortized to interest expense over the life of
the loan. The fair value of the conversion features was $78,814 at December 31, 2014 and reflected in the conversion option liability line in
the consolidated balance sheet.
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The proceeds from the convertible debt issued on November 17, 2014, was allocated between the host debt instrument and the convertible
option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula, resulting in
an allocation of $122,431 to the convertible option and accounted for as a liability in the Company’s consolidated balance sheet. In accordance
with the provisions of ASC 815-40, the gross proceeds of $105,000 is offset by a debt discount of $105,000 which will be amortized to interest
expense over the twelve month life of the debt. The residual amount of debt discount of $22,431 in excess of the principal of $105,000 is
charged to other expense on the consolidated statement of operations.
Other Notes
On August 23, 2013 we signed a Merchant Agreement with Strategic Funding Source inc. ("SFS"). Under the agreement we received
$75,000 in exchange for rights to all customer receipts until SFS is paid $99,000 to be collected at a rate of $849 per business day. The
payments are secured by essentially all tangible assets of the Company. On August 28, 2013 the agreement was modified to give the
Company the right to pre-pay the note at any time prior to January 21, 2014. If pre-paid, the Company will receive a discount based on the
date of the pre-payment after the funding date. Discounts range from $16,500, if pre-paid within 30 days of funding to $1,500 if pre-paid
within 150 days of funding. The note was pre-paid on December 10, 2013.
On December 10, 2013, we signed a Merchant Agreement with Scripline LLC. Under the agreement we received $96,000 in exchange for
rights to all customer receipts until Scripline LLC is paid $126,700, to be collected at the rate of $874 per business day. The payments are
secured by essentially all tangible assets of the Company. The outstanding balance was recorded as other debt on the balance sheet.
On June 6, 2014, we signed a Merchant Agreement with On Deck Capital. Under the agreement we received $150,000 in exchange for
rights to all customer receipts until On Deck Capital is paid $190,499, to be collected at the rate of $756 per business day. The payments are
secured by essentially all tangible assets of the Company. The Company paid On Deck Capital $3,750 in fees related to this transaction. The
outstanding balance is recorded as other debt on the balance sheet. $26,100 of the proceeds were used to pay off the Scripline LLC
outstanding balance.
On June 23, 2014 the Company received $50,000 on a short term interest free note from a lender. This note was repaid on July 4, 2014.
On July 31, 2014, we signed a Merchant Agreement with a lender. Under the agreement we received $75,000 in exchange for rights to all
customer receipts until the lender is paid $101,260, to be collected at the rate of $632 per business day. The payments are secured by
essentially all tangible assets of the Company. The Company paid the lender $999 in fees related to this transaction. The remaining
outstanding balance under this agreement was paid off in December 2014.
62
On November 12, 2014 thru November 17, 2014 the Company received and aggregate of $32,000 in short term interest free and
unsecured loans from two employees and one outside lender. $26,000 of these loans were repaid at December 31, 2014.
(8) Transactions with Related Persons
From time to time Mr. Richard T. Schumacher, the Company’s President and CEO, makes loans to the Company to provide the Company
with operating cash. The balance of these loans at December 31, 2014 was $6,000.
On January 28, 2014, Mr. Schumacher invested $10,000 in our Series K Offering of convertible preferred stock and warrants to purchase
shares of common stock, for 40 shares of convertible Preferred Stock (convertible into 40,000 shares of common stock) and a Warrant to
purchase 20,000 shares of common stock at an exercise price of $0.3125 per share.
On January 28, 2014, Mr. Jeffrey Peterson, invested $17,250 in our Series K Offering of convertible preferred stock and warrants to
purchase shares of common stock, for 69 shares of convertible Preferred Stock (convertible into 69,000 shares of common stock) and a
Warrant to purchase 34,500 shares of common stock at an exercise price of $0.3125 per share.
On January 28, 2014, Mr. Vito Mangiardi, invested $22,500 in our Series K Offering of convertible preferred stock and warrants to
purchase shares of common stock, for 90 shares of convertible Preferred Stock (convertible into 90,000 shares of common stock) and a
Warrant to purchase 45,000 shares of common stock at an exercise price of $0.3125 per share.
On January 28, 2014, Mr. Kevin Pollack, invested $22,500 in our Series K Offering of convertible preferred stock and warrants to
purchase shares of common stock, for 90 shares of convertible Preferred Stock (convertible into 90,000 shares of common stock) and a
Warrant to purchase 45,000 shares of common stock at an exercise price of $0.3125 per share.
On January 28, 2014, Dr. Mickey Urdea, invested $22,500 in our Series K Offering of convertible preferred stock and warrants to
purchase shares of common stock, for 90 shares of convertible Preferred Stock (convertible into 90,000 shares of common stock) and a
Warrant to purchase 45,000 shares of common stock at an exercise price of $0.3125 per share.
On November 12, 2014, Mr. Schumacher invested $5,000 in our Series K Offering of convertible preferred stock and warrants to purchase
shares of common stock, for 20 shares of convertible Preferred Stock (convertible into 20,000 shares of common stock) and a Warrant to
purchase 10,000 shares of common stock at an exercise price of $0.3125 per share.
On November 12, 2014, Mr. Jeffrey Peterson, invested $13,000 in our Series K Offering of convertible preferred stock and warrants to
purchase shares of common stock, for shares of convertible Preferred Stock (convertible into 69,000 shares of common stock) and a Warrant
to purchase 34,500 shares of common stock at an exercise price of $0.3125 per share.
On November 12, 2014, Mr. Vito Mangiardi, invested $5,000 in our Series K Offering of convertible preferred stock and warrants to
purchase shares of common stock, for 20 shares of convertible Preferred Stock (convertible into 20,000 shares of common stock) and a
Warrant to purchase 10,000 shares of common stock at an exercise price of $0.3125 per share.
On November 12, 2014, Mr. Kevin Pollack, invested $5.000 in our Series K Offering of convertible preferred stock and warrants to
purchase shares of common stock, for 20 shares of convertible Preferred Stock (convertible into 20,000 shares of common stock) and a
Warrant to purchase 10,000 shares of common stock at an exercise price of $0.3125 per share.
On November 12, 2014, Dr. Mickey Urdea, invested $5,000 in our Series K Offering of convertible preferred stock and warrants to
purchase shares of common stock, for 20 shares of convertible Preferred Stock (convertible into 20,000 shares of common stock) and a
Warrant to purchase 10,000 shares of common stock at an exercise price of $0.3125 per share.
On December 23, 2014, Mr. Schumacher participated in a warrant reset agreement in order to re-price his Common Stock Purchase
Warrants. Mr. Schumacher exercised 34,350 warrants for a total of $8,587 and received 34,350 shares of common stock and 34,350 new
warrants at an exercise price of $0.40 per common share.
63
On December 23, 2014, Mr. Peterson participated in a warrant reset agreement in order to re-price his Common Stock Purchase Warrants.
Mr. Peterson exercised 23,000 warrants for a total of $5,750 and received 23,000 shares of common stock and 23,000 new warrants at an
exercise price of $0.40 per common share.
On December 23, 2014, Mr. Mangiardi participated in a warrant reset agreement in order to re-price his Common Stock Purchase
Warrants. Mr. Mangiardi exercised 20,000 warrants for a total of $5,000 and received 20,000 shares of common stock and 20,000 new
warrants at an exercise price of $0.40 per common share.
On December 23, 2014, Mr. Pollack participated in a warrant reset agreement in order to re-price his Common Stock Purchase Warrants.
Mr. Pollack exercised 40,000 warrants for a total of $10,000 and received 40,000 shares of common stock and 40,000 new warrants at an
exercise price of $0.40 per common share.
On December 23, 2014, Mr. Urdea participated in a warrant reset agreement in order to re-price his Common Stock Purchase Warrants.
Mr. Urdea exercised 57,000 warrants for a total of $14,250 and received 57,000 shares of common stock and 57,000 new warrants at an
exercise price of $0.40 per common share.
(9) Stockholders’ (Deficit)
Preferred Stock
We are authorized to issue 1,000,000 shares of preferred stock with a par value of $0.01. Of the 1,000,000 shares of preferred stock:
1) 20,000 shares have been designated as Series A Junior Participating Preferred Stock (“Junior A”)
2) 313,960 shares have been designated as Series A Convertible Preferred Stock (“Series A”)
3) 279,256 shares have been designated as Series B Convertible Preferred Stock (“Series B”)
4) 88,098 shares have been designated as Series C Convertible Preferred Stock (“Series C”)
5) 850 shares have been designated as Series D Convertible Preferred Stock (“Series D”)
6) 500 shares have been designated as Series E Convertible Preferred Stock (“Series E”)
7) 240,000 shares have been designated as Series G Convertible Preferred Stock (“Series G”)
8) 10,000 shares have been designated as Series H Convertible Preferred Stock (“Series H”)
9) 21 shares have been designated as Series H2 Convertible Preferred Stock (“Series H2”)
10) 6,250 shares have been designated as Series J Convertible Preferred Stock (“Series J”)
11) 15,000 shares have been designated as Series K Convertible Preferred Stock (“Series K”)
As of December 31, 2014, there were no shares of Junior A, and Series A, B, C, and E issued and outstanding.
64
Series D Convertible Preferred Stock
On November 11, 2011, we completed a registered direct offering, pursuant to which we sold an aggregate of 843 units for a purchase
price of $1,000 per unit, resulting in gross proceeds to us of $843,000 (the “Series D Placement”). Each unit (“Series D Unit”) consisted of (i)
one share of Series D Convertible Preferred Stock, $0.01 par value per share (the “Series D Convertible Preferred Stock”) convertible into
1,538.46 shares of our common stock, (subject to adjustment for stock splits, stock dividends, recapitalization, etc.) and (ii) one five-year
warrant to purchase approximately 614 shares of our common stock at a per share exercise price of $0.81, subject to adjustment as provided in
the Warrants (“Series D Warrant”). The Series D Warrants will be exercisable beginning on May 11, 2012 and until the close of business on
the fifth anniversary of the initial exercise date.
65
We engaged an investment banker to assist with the Series D Placement. In connection with the Series D Placement, we paid the
investment banker a fee of approximately $67,000 cash.
The proceeds from the sale of each Series D Unit were allocated between the Series D Convertible Preferred Stock and the Series D
Warrants based on the residual method. The estimated fair value of the Series D Warrants was determined using a binomial formula, resulting
in an allocation of the gross proceeds of $283,725 to the total warrants issued. The allocation of the gross proceeds to the Series D Convertible
Preferred Stock was $559,275. In accordance with the provisions of ASC 470-20, an additional adjustment between Additional Paid in Capital
and Accumulated Deficit of $530,140 was recorded to reflect an implicit non-cash dividend related to the allocation of proceeds between the
stock and warrants issued. The $530,140 represents the value of the adjustment to additional paid in capital related to the beneficial
conversion feature of the Series D Convertible Preferred Stock. The value adjustment was calculated by subtracting the fair market value of
the underlying common stock on November 10, 2011 issuable upon conversion of the Series D Convertible Preferred Stock from the fair
market value of the Series D Convertible Preferred Stock as determined when the Company performed a fair market value allocation of the
proceeds to the Series D Convertible Preferred Stock and warrants. The warrants are recorded as a liability. See “Warrant Derivative
Liability” below.
The Series D Convertible Preferred Stock will rank senior to the Company’s common stock and Series C Convertible Preferred Stock with
respect to payments made upon liquidation, winding up or dissolution. Upon any liquidation, dissolution or winding up of the Company, after
payment of the Company’s debts and liabilities, and before any payment is made to the holders of any junior securities, the holders of Series D
Convertible Preferred Stock will first be entitled to be paid $1,000 per share subject to adjustment for accrued but unpaid dividends.
We may not pay any dividends on shares of common stock unless we also pay dividends on the Series D Convertible Preferred Stock in
the same form and amount, on an as-if-converted basis, as dividends actually paid on shares of our common stock. Except for such dividends,
no other dividends may be paid on the Series D Convertible Preferred Stock.
Each share of Series D Convertible Preferred Stock is convertible into 1,538.46 shares of common stock (based upon an initial
conversion price of $0.65 per share) at any time at the option of the holder, subject to adjustment for stock splits, stock dividends,
combinations, and similar recapitalization transactions (the “Series D Conversion Ratio”). Subject to certain exceptions, if the Company issues
any shares of common stock or common stock equivalents at a per share price that is lower than the conversion price of the Series D
Convertible Preferred Stock, the conversion price will be reduced to the per share price at which such shares of common stock or common
stock equivalents are issued. Each share of Series D Convertible Preferred Stock will automatically be converted into shares of common stock
at the Series D Conversion Ratio then in effect if, after six months from the closing of the Series D Placement, the common stock trades on
the OTC Market (or other primary trading market or exchange on which the common stock is then traded) at a price equal to at least 300% of
the then effective Series D Convertible Preferred Stock conversion price for 20 out of 30 consecutive trading days with each trading day
having a volume of at least $50,000. Unless waived under certain circumstances by the holder of the Series D Convertible Preferred Stock,
such holder’s Series D Convertible Preferred Stock may not be converted if upon such conversion the holder’s beneficial ownership would
exceed certain thresholds.
In addition, in the event we consummate a merger or consolidation with or into another person or other reorganization event in which our
shares of common stock are converted or exchanged for securities, cash or other property, or we sell, lease, license or otherwise dispose of all
or substantially all of our assets or we or another person acquire 50% or more of our outstanding shares of common stock, then following
such event, the holders of the Series D Convertible Preferred Stock will be entitled to receive upon conversion of the Series D Convertible
Preferred Stock the same kind and amount of securities, cash or property which the holders of the Series D Convertible Preferred Stock would
have received had they converted the Series D Convertible Preferred Stock immediately prior to such fundamental transaction.
The holders of Series D Convertible Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company
for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting),
except that the holders of Series D Convertible Preferred Stock may vote separately as a class on any matters that would (i) amend, our
Restated Articles of Organization, as amended, in a manner that adversely affects the rights of the Series D Convertible Preferred Stock, (ii)
alter or change adversely the powers, preferences or rights of the Series D Convertible Preferred Stock or alter or amend the certificate of
designation, (iii) authorize or create any class of shares ranking as to dividends, redemption or distribution of assets upon liquidation senior to,
or otherwise pari passu with, the Series D Convertible Preferred Stock, or (iv) increase the number of authorized shares of Series D
Convertible Preferred Stock.
66
If, within 12 months of the initial issuance of the Series D Convertible Preferred Stock, we issue any common stock, common stock
equivalents, indebtedness or any combination thereof (a “Subsequent Financing”), the holders of Series D Convertible Preferred Stock will
have the right to participate on a pro-rata basis in up to 50% of such Subsequent Financing.
Series D Warrants
The Series D Warrants originally had an exercise price equal to $0.81 per share of common stock. In April 2012, the number of Series D
Warrants increased by 530,406 to a total of 1,047,875 and each Series D Warrant had an exercise price reset to $0.40 per share of common
stock. In December of 2013 the number of Series D Warrants increased by 628,733 to a total of 1,676,608 and each Series D Warrant had an
exercise price reset to $0.25 per share of common stock. The Series D Warrants will be exercisable beginning on the six month anniversary of
the date of issuance and expire five years from the initial exercise date. The Series D Warrants permit the holder to conduct a “cashless
exercise” at any time a registration statement registering, or the prospectus contained therein, is not available for the issuance of the shares of
common stock issuable upon exercise of the Series D Warrant, and under certain circumstances at the expiration of the Series D
Warrants. The exercise price and/or number of shares of common stock issuable upon exercise of the Series D Warrants are subject to
adjustment for certain stock dividends, stock splits or similar capital reorganizations, as set forth in the Warrants. The exercise price is also
subject to adjustment in the event that we issue any shares of common stock or common stock equivalents at a per share price that is lower
than the exercise price for the Series D Warrants then in effect. Upon any such issuance, subject to certain exceptions, the exercise price will
be reduced to the per share price at which such shares of common stock or common stock equivalents are issued and number of Series D
Warrant shares issuable thereunder shall be increased such that the aggregate exercise price payable thereunder, after taking into account the
decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment. Unless waived under certain
circumstance by the holder of a Series D Warrant, such holder may not exercise the Series D Warrant if upon such exercise the holder’s
beneficial ownership of the Company’s common stock would exceed certain thresholds.
In the event we consummate a merger or consolidation with or into another person or other reorganization event in which our shares
of common stock are converted or exchanged for securities, cash or other property, or we sell, lease, license or otherwise dispose of all or
substantially all of our assets or we or another person acquire 50% or more of our outstanding shares of common stock, then following such
event, the holders of the Series D Warrants will be entitled to receive upon exercise of the Series D Warrants the same kind and amount of
securities, cash or property which the holders would have received had they exercised the Series D Warrants immediately prior to such
fundamental transaction.
Series G Convertible Preferred Stock
On July 6 and November 15, 2012, we completed a private placement, pursuant to which we sold an aggregate of 145,320 units for a
purchase price of $5.00 per unit (the “Series G Purchase Price”), resulting in gross proceeds to us of $726,600 (the “Series G Private
Placement”). Each unit (“Series G Unit”) consists of (i) one share of Series G Convertible Preferred Stock, $0.01 par value per share (the
“Series G Preferred Stock”) convertible into 10 shares of our common stock, (subject to adjustment for stock splits, stock dividends,
recapitalization, etc.) and (ii) a three-year warrant to purchase 5 shares of our common stock at a per share exercise price of $0.50 (the “Series
G Warrant”). The Series G Warrants will be exercisable until the close of business on the third anniversary of the applicable closing date of
the Series G Private Placement. Of the $726,600 invested in the Series G Private Placement, $31,100 was received in cash and $695,500 was
from the conversion of outstanding indebtedness and accrued board of directors’ fees.
Each share of Series G Preferred Stock will receive a cumulative dividend at the annual rate of (i) four percent (4%) on those shares of
Series G Preferred Stock purchased from the Company by an individual purchaser with an aggregate investment of less than $100,000, (ii) six
percent (6%) on those shares of Series G Preferred Stock purchased from the Company by an individual purchaser with an aggregate
investment of at least $100,000 but less than $250,000, and (iii) twelve percent (12%) on those shares of Series G Preferred Stock purchased
from the Company by an individual purchaser with an aggregate investment of at least $250,000. Dividends accruing on the Series G
Preferred Stock shall accrue from day to day until, and shall be paid within fifteen (15) days of, the first anniversary of, the original issue date
of the Series G Preferred Stock; provided, however, if any shares of the Company’s Series E Preferred Stock are outstanding at such time,
payment of the accrued dividends on the Series G Preferred Stock shall be deferred until no such shares of Series E Convertible Preferred
Stock remain outstanding. The Company may pay accrued dividends on the Series G Preferred Stock in cash or in shares of its common stock
equal to the volume weighted average price of the common stock as reported by the OTC QB Market for the ten (10) trading days
immediately preceding the Series G’s first anniversary.
67
At the election of the Company and upon required advanced notice, each share of Series G Preferred Stock will automatically be
converted into shares of common stock at the Conversion Ratio then in effect: (i) if, after 6 months from the original issuance date of the
Series G Preferred Stock, the common stock trades on the OTC QB Market (or other primary trading market or exchange on which
the common stock is then traded) at a price equal to at least $0.75, for 7 out of 10 consecutive trading days with average daily trading volume
of at least 10,000 shares, (ii) on or after the first anniversary of the original issuance date of the Series G Preferred Stock or (iii) upon
completion of a firm-commitment underwritten registered public offering by the Company at a per share price equal to at least $0.75, with
aggregate gross proceeds to the Company of not less than $2.5 million. Unless waived under certain circumstances by the holder of the Series
G Preferred Stock, such holder’s Series G Preferred Stock may not be converted if upon such conversion the holder’s beneficial ownership
would exceed certain thresholds.
The holders of Series G Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company for their
action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), except as
required by law.
Series G Warrants
The Series G Warrants issued in the Series G Private Placement have an exercise price equal to $0.50 per share, with a term expiring on
July 6, 2015. The Series G Warrants also permit the holder to conduct a “cashless exercise” at any time the holder of the Series G Warrant is
an affiliate of the Company. The exercise price and/or number of shares issuable upon exercise of the Series G Warrants will be subject to
adjustment for stock dividends, stock splits or similar capital reorganizations, as set forth in the Series G Warrants.
Subject to the terms and conditions of the Series G Warrants, at any time commencing six months from the closing date the Company has
the right to call for cancellation of the Series G Warrants if the volume weighted average price of its common stock on the OTC QB Market
(or other primary trading market or exchange on which our common stock is then traded) equals or exceeds three times the per share exercise
price of the Warrants for either (i) 10 consecutive trading days or (ii) 15 out of 25 consecutive trading days.
In connection with our sale of Series G Units, we agreed that for each share of Series G Preferred Stock purchased by an investor, the
exercise price of one warrant to purchase one share of common stock, previously issued to the investor in prior offerings by the Company to
purchase common stock of the Company held of record by such investor, shall be reduced to $0.60 per share and will remain at such reduced
exercise price until the expiration date of the warrants.
In connection with the sale of Series G Units, we treated the reduction in exercise price as a warrant amendment and calculated the fair
value of 1,495,022 warrants with the reduced exercise price of $0.60, as described above, using the Black-Scholes model with the below
assumptions. The Company has determined that the fair value of the amended warrants increased as compared with the fair value of the
original warrants immediately prior to amendment.
68
Series H Convertible Preferred Stock
On December 28, 2012 the Company amended the Articles of Incorporation to authorize 10,000 shares of Series H Convertible Preferred
Stock. On January 4, 2013, the Company reported that it had entered into a securities purchase and exchange agreement with an investor,
pursuant to which the Company agreed to exchange 1,000,000 shares of the Company’s common stock, par value $0.01 per share of common
stock held by the investor for an aggregate of 10,000 shares of a newly created series of preferred stock, designated Series H Convertible
Preferred Stock, par value $0.01 per share (the “Series H Preferred Stock”) in a non-cash transaction. The investor originally purchased the
common stock from the Company for $0.8025 per share. The exchange ratio was 100 shares of common stock per share of Series H Preferred
Stock at a stated conversion price of $0.8025 per share.
Series H2 Convertible Preferred Stock
On December 23, 2014 the Company amended the Articles of Incorporation to authorize 21 shares of Series H2 Convertible Preferred
Stock. On December 23, 2014, the Company reported that it had entered into a securities purchase and exchange agreement with an investor,
pursuant to which the Company agreed to exchange 2,100,000 shares of the Company’s common stock, par value $0.01 per share of common
stock held by the investor for an aggregate of 21 shares of a newly created series of preferred stock, designated Series H2 Convertible
Preferred Stock, par value $0.01 per share (the “Series H2 Preferred Stock”) in a non-cash transaction. The investor originally acquired the
common stock from the Company for $0.25 per share in the warrant reset transaction on December 23, 2014. The exchange ratio was 100,000
shares of common stock per share of Series H2 Preferred Stock at a stated conversion price of $0.25 per share.
Series J Convertible Preferred Stock
On February 6, March 28 and May 20, 2013, the Company entered into a Securities Purchase with various individuals pursuant to which
the Company sold an aggregate of 5,087.5 units for a purchase price of $400.00 per unit (the “Purchase Price”), or an aggregate Purchase
Price of $2,034,700. Each unit purchased in the initial tranche consists of (i) one share of a newly created series of preferred stock, designated
Series J Convertible Preferred Stock, par value $0.01 per share (the “Series J Convertible Preferred Stock”), convertible into 1,000 shares of
the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 1,000 shares of common stock at an exercise price
equal to $0.40 per share. The warrants expire three years from the issuance date. Of the $2,034,700 invested in the Private Placement,
$921,000 was received in cash and $1,113,700 was from the conversion of outstanding indebtedness, interest and accrued board of directors’
fees. The Company incurred $24,405 of legal fees in conjunction with this private placement. The purchasers in the initial tranche of the
private placement consisted of certain existing and new investors in the Company as well as all of the members of the Company’s Board of
Directors.
From the date of issuance of any shares of Series J Convertible Preferred Stock and until the earlier of the first anniversary of such date,
the voluntary conversion of any shares of Series J Convertible Preferred Stock, or the date of any mandatory conversion (solely under the
Company's control based upon certain triggering events) of the Series J Convertible Preferred Stock, dividends will accrue on each share of
Series J Convertible Preferred Stock at an annual rate of (i) four percent (4%) of the Purchase Price on those shares of Series J Convertible
Preferred Stock purchased from the Company pursuant to the Securities Purchase Agreement by an individual purchaser who purchased from
the Company shares of Series J Convertible Preferred Stock with an aggregate Purchase Price of less than $250,000, and (ii) six percent (6%)
of the Purchase Price on those shares of Series J Convertible Preferred Stock purchased from the Company pursuant to the Securities Purchase
Agreement by an individual purchaser who purchased shares of Series J Convertible Preferred Stock with an aggregate purchase price of at
least $250,000. Dividends accruing on the Series J Convertible Preferred Stock shall accrue from day to day until the earlier of the first
anniversary of the date of issuance of such shares of Series J Convertible Stock, the voluntary conversion of any shares of Series J Convertible
Preferred Stock, or the date of any mandatory conversion of the Series J Convertible Preferred Stock, and shall be paid, as applicable, within
fifteen (15) days of the first anniversary of the original issue date of the Series J Convertible Preferred Stock, within five (5) days of the
voluntary conversion of shares of the Series J Convertible Preferred Stock, or within five (5) days of the mandatory conversion of shares of
the Series J Convertible Preferred Stock. The Company may pay accrued dividends on the Series J Convertible Preferred Stock in cash or, in
the sole discretion of the Board of Directors of the Company, in shares of its common stock in accordance with a specified formula.
Each share of Series J Convertible Preferred Stock is convertible into 1,000 shares of common stock at the option of the holder on or after
the six-month anniversary of the issuance of such share, subject to adjustment for stock splits, stock dividends, recapitalizations and similar
transactions (the “Conversion Ratio”). Unless waived under certain circumstances by the holder of Series J Convertible Preferred Stock, such
holder’s shares of Series J Convertible Preferred Stock may not be converted if upon such conversion the holder’s beneficial ownership would
exceed certain thresholds.
69
At the election of the Company and upon required advance notice, each share of Series J Convertible Preferred Stock will automatically
be converted into shares of common stock at the Conversion Ratio then in effect: (i) on or after the six-month anniversary of the original
issuance date of the Series J Convertible Preferred Stock, the common stock trades on the OTC QB Market (or other primary trading market
or exchange on which the common stock is then traded) at a price per share equal to at least $0.80 for 7 out of 10 consecutive trading days
with average daily trading volume of at least 50,000 shares, (ii) on the first anniversary of the original issuance date of the Series J
Convertible Preferred Stock or (iii) within three days of the completion of a firm-commitment underwritten registered public offering by the
Company at a per share price equal to at least $0.80, with aggregate gross proceeds to the Company of not less than $2.5 million. Unless
waived under certain circumstances by the holder of the Series J Convertible Preferred Stock, such holder’s Series J Convertible Preferred
Stock may not be converted if upon such conversion the holder’s beneficial ownership would exceed certain thresholds.
The proceeds from the sale of each Series J Unit were allocated between the Series J Convertible Preferred Stock and the Series J
Warrants based on the relative fair value method. The estimated fair value of the Series J Warrants was determined using a Black Scholes
formula, resulting in an allocation of the gross proceeds of $885,309 to the total warrants issued. The allocation of the gross proceeds to the
Series J Convertible Preferred Stock was $1,124,986, net of $24,405 in legal costs. In accordance with the provisions of ASC 470-20, an
additional adjustment between Additional Paid in Capital and Accumulated Deficit of $651,182 was recorded to reflect an implicit non-cash
dividend related to the allocation of proceeds between the stock and warrants issued. The $651,182 represents the value of the adjustment to
additional paid in capital related to the beneficial conversion feature of the Series J Convertible Preferred Stock. The value adjustment was
calculated by subtracting the fair market value of the underlying common stock on February 6, March 28 and May 20, 2013 issuable upon
conversion of the Series J Convertible Preferred Stock from the fair market value of the Series J Convertible Preferred Stock as determined
when the Company performed a fair market value allocation of the proceeds to the Series J Convertible Preferred Stock and warrants.
In connection with the Series J warrants, we calculated the fair value of the warrants received as described above using the Black-
Scholes formula with the below assumptions:
Assumptions
Contractual life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per warrant
$
$
Series J
warrants
February 6,
2013
Series J
warrants
March 28, 2013
36
144.3
0.36%
$
0.40
$
0.26
36
141.8
0.39%
$
0.40
$
0.36
Series J
warrants May
20, 2013
36
147.0
0.36%
0.40
0.30
The holders of Series J Convertible Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company
for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting),
except as required by law.
Series J Warrants
The Warrants issued in the Private Placement have an exercise price equal to $0.40 per share, with a term expiring three years from the
issuance date. The Warrants also permit the holder to conduct a “cashless exercise” at any time the holder of the Warrant is an affiliate of the
Company. The exercise price and/or number of shares issuable upon exercise of the Warrants will be subject to adjustment for stock
dividends, stock splits or similar capital reorganizations, as set forth in the Warrant agreement.
Subject to the terms and conditions of the Warrants, at any time commencing six months from the closing date of the sale of Units under
the Securities Purchase Agreement the Company has the right to call the Warrants for cancellation if the volume weighted average price of its
common stock on the OTC QB Market (or other primary trading market or exchange on which the common stock is then traded) equals or
exceeds three times the per share exercise price of the Warrants for either (i) 10 consecutive trading days or (ii) 15 out of 25 consecutive
trading days.
Registration Rights Agreement
In connection with the Private Placement, the Company has agreed that, if, at any time after February 1, 2014, the Company files a
Registration Statement relating to an offering of equity securities of the Company (the “Registration Statement”), subject to certain
exceptions, including a Registration Statement relating solely to an offering or sale of securities having an aggregate public offering price of
less than $5,000,000, the Company shall include in the Registration Statement the resale of the shares of common stock underlying the
Warrants. Shares of common stock issued upon conversion of Series J Convertible Preferred Stock or in payment of the dividend on the
Series J Convertible Preferred Stock will not be registered and will not be subject to registration rights. This right is subject to customary
conditions and procedures.
70
Series K Convertible Preferred Stock
On December 12, 2013, the Company entered into a Securities Purchase with various individuals pursuant to which the Company sold an
aggregate of 4,000 units for a purchase price of $250.00 per unit (the “Purchase Price”), for an aggregate Purchase Price of $1,000,000. Each
unit purchased in the initial tranche consists of (i) one share of a newly created series of preferred stock, designated Series K Convertible
Preferred Stock, par value $0.01 per share (the “Series K Convertible Preferred Stock”), convertible into 1,000 shares of the Company’s
common stock, par value $0.01 per share and (ii) a warrant to purchase 500 shares of common stock at an exercise price equal to $0.3125 per
share. The warrants expire three years from the issuance date. Of the $1,000,000 invested in the Private Placement, $572,044 was received in
cash and $427,956 was from the conversion of outstanding indebtedness and interest. The Company incurred $43,334 of fees in conjunction
with this private placement. The purchasers in the initial tranche of the private placement consisted of certain existing and new investors in the
Company as well as all of the members of the Company’s Board of Directors.
From the date of issuance of any shares of Series K Convertible Preferred Stock and until the earlier of the first anniversary of such date,
the voluntary conversion of any shares of Series K Convertible Preferred Stock, or the date of any mandatory conversion (solely under the
Company's control based upon certain triggering events) of the Series K Convertible Preferred Stock, dividends will accrue on each share of
Series K Convertible Preferred Stock at an annual rate of (i) four percent (4%) of the Purchase Price on those shares of Series K Convertible
Preferred Stock purchased from the Company pursuant to the Securities Purchase Agreement by an individual purchaser who purchased from
the Company shares of Series K Convertible Preferred Stock with an aggregate Purchase Price of less than $100,000, and (ii) six percent (6%)
of the Purchase Price on those shares of Series K Convertible Preferred Stock purchased from the Company pursuant to the Securities
Purchase Agreement by an individual purchaser who purchased shares of Series K Convertible Preferred Stock with an aggregate purchase
price of at least $100,000. Dividends accruing on the Series K Convertible Preferred Stock shall accrue from day to day until the earlier of the
first anniversary of the date of issuance of such shares of Series K Convertible Stock, the voluntary conversion of any shares of Series K
Convertible Preferred Stock, or the date of any mandatory conversion of the Series K Convertible Preferred Stock, and shall be paid, as
applicable, within fifteen (15) days of the first anniversary of the original issue date of the Series K Convertible Preferred Stock, within five
(5) days of the voluntary conversion of shares of the Series K Convertible Preferred Stock, or within five (5) days of the mandatory
conversion of shares of the Series K Convertible Preferred Stock. The Company may pay accrued dividends on the Series K Convertible
Preferred Stock in cash or, in the sole discretion of the Board of Directors of the Company, in shares of its common stock in accordance with a
specified formula.
Each share of Series K Convertible Preferred Stock is convertible into 1,000 shares of common stock at the option of the holder on or
after the six-month anniversary of the issuance of such share, subject to adjustment for stock splits, stock dividends, recapitalizations and
similar transactions (the “Conversion Ratio”). Unless waived under certain circumstances by the holder of Series K Convertible Preferred
Stock, such holder’s shares of Series K Convertible Preferred Stock may not be converted if upon such conversion the holder’s beneficial
ownership would exceed certain thresholds.
At the election of the Company and upon required advance notice, each share of Series K Convertible Preferred Stock will automatically
be converted into shares of common stock at the Conversion Ratio then in effect: (i) on or after the six-month anniversary of the original
issuance date of the Series K Convertible Preferred Stock, the common stock trades on the OTC QB Market (or other primary trading market
or exchange on which the common stock is then traded) at a price per share equal to at least $0.80 for 7 out of 10 consecutive trading days
with average daily trading volume of at least 50,000 shares, (ii) on the first anniversary of the original issuance date of the Series K
Convertible Preferred Stock or (iii) within three days of the completion of a firm-commitment underwritten registered public offering by the
Company at a per share price equal to at least $0.80, with aggregate gross proceeds to the Company of not less than $2.5 million. Unless
waived under certain circumstances by the holder of the Series K Convertible Preferred Stock, such holder’s Series K Convertible Preferred
Stock may not be converted if upon such conversion the holder’s beneficial ownership would exceed certain thresholds.
71
The proceeds from the sale of each Series K Unit were allocated between the Series K Convertible Preferred Stock and the Series K
Warrants based on the relative fair value method. The estimated fair value of the Series K Warrants was determined using a Black-Scholes
formula, resulting in an allocation of the gross proceeds of $271,422 to the total warrants issued. The allocation of the gross proceeds to the
Series K Convertible Preferred Stock was $685,245, net of $43,334 in fees. In accordance with the provisions of ASC 470-20, an additional
adjustment between Additional Paid in Capital and Accumulated Deficit of $351,421 was recorded to reflect an implicit non-cash dividend
related to the allocation of proceeds between the stock and warrants issued. The $351,421 represents the value of the adjustment to additional
paid in capital related to the beneficial conversion feature of the Series K Convertible Preferred Stock. The value adjustment was calculated
by subtracting the fair market value of the underlying common stock on December 12, 2013 issuable upon conversion of the Series K
Convertible Preferred Stock from the fair market value of the Series K Convertible Preferred Stock as determined when the Company
performed a fair market value allocation of the proceeds to the Series K Convertible Preferred Stock and warrants.
On January 29, 2014, the Company entered into a Securities Purchase Agreement with various accredited investors, pursuant to which the
Company sold an aggregate of 4,875 units for a purchase price of $250.00 per unit or an aggregate Purchase Price of $1,218,750. This was
the second tranche of a $1.5 million private placement previously disclosed by the Company in its Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 12, 2013, which is incorporated by reference herein. The Purchasers in the second tranche
of the Private Placement consisted of certain existing and new investors in the Company, as well as all of the members of the Company’s
Board of Directors.
Each unit purchased in the second tranche consists of (i) one share of Series K Convertible Preferred Stock, par value $0.01 per share,
convertible into 1,000 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 500 shares of common
stock at an exercise price equal to $0.3125 per share, with a term expiring on January 29, 2017.
On February 28, 2014, the Company entered into a Securities Purchase Agreement with various accredited investors, pursuant to which
the Company sold an aggregate of 1,854 units for a purchase price of $340.00 per unit or an aggregate Purchase Price of $630,360. This was
the third tranche of a $1.5 million private placement previously disclosed by the Company in its Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 12, 2013, which is incorporated by reference herein. The Purchasers in the third tranche of
the Private Placement consisted of certain existing and new investors in the Company.
Each unit purchased in the third tranche consists of (i) one share of Series K Convertible Preferred Stock, par value $0.01 per share
convertible into 1,000 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 500 shares of common
stock at an exercise price equal to $0.425 per share, with a term expiring on February 28, 2017.
On June 30, 2014, the Company entered into a Securities Purchase Agreement with various accredited investors, pursuant to which the
Company sold an aggregate of 734 units for a purchase price of $300.00 per unit or an aggregate Purchase Price of $220,000. This was the
fourth tranche of a $1.5 million private placement previously disclosed by the Company in its Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 12, 2013, which is incorporated by reference herein. The Purchasers in the fourth tranche
of the Private Placement consisted of certain existing and new investors in the Company.
Each unit purchased in the fourth tranche consists of (i) one share of Series K Convertible Preferred Stock, par value $0.01 per share
convertible into 1,000 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 500 shares of common
stock at an exercise price equal to $0.375 per share, with a term expiring on June 30, 2017.
On November 12, 2014, the Company entered into a Securities Purchase Agreement with various accredited investors, pursuant to which
the Company sold an aggregate of 1,052 units for a purchase price of $250.00 per unit or an aggregate Purchase Price of $263,000. This was
the fifth tranche of a $1.5 million private placement previously disclosed by the Company in its Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 12, 2013, which is incorporated by reference herein. The Purchasers in the fourth tranche
of the Private Placement consisted of certain existing and new investors in the Company.
Each unit purchased in the fifth tranche consists of (i) one share of Series K Convertible Preferred Stock, par value $0.01 per share
convertible into 1,000 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 500 shares of common
stock at an exercise price equal to $0.3125 per share, with a term expiring on November 12, 2017.
72
The Private Placement was originally expected to raise $1.5 million and close on or before January 31, 2014. On January 29, 2014, the
Company’s Board of Directors voted to increase the subscription amount of the Private Placement by $718,750. The Board of Directors also
voted to extend the Private Placement until February 28, 2014. On February 28, 2014 the Company’s Board of Directors voted to increase the
subscription amount once again to a total of $3.5 million and extended the closing to April 4, 2014. On April 13, 2014 the Company’s Board
of Directors voted to increase the subscription amount by $1 million, to a total of $4.5 million, and extended the closing to May 31, 2014. On
July 7, 2014 the Company’s Board of Directors voted to extend the closing to August 15, 2014. Together with the initial tranche of $1,000,000
that closed on December 12, 2013, the second tranche of $1,218,750 that closed January 29, 2014, the third tranche of $630,360 that closed
February 28, 2014, the fourth tranche of $220,000 that closed June 30, 2014, and the fifth tranche of $263,000 that closed November 12,
2014,the total consideration received by the Company in the Private Placement is $3,332,110, which is comprised of $2,511,404 in cash and
$820,706 from the conversion of outstanding indebtedness and Board of Director fees. The placement was closed after the November 12,
2014 round.
On September 22, 2014 the Company issued 64,000 shares of common stock for the conversion of 64 shares of Series K Preferred
Convertible Stock.
In connection with the Series K Warrants, we calculated the fair value of the warrants received as described above using the Black-
Scholes formula with the below assumptions:
Assumptions
Contractual life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per warrant
Series K
Warrants
December 12,
2013
Series K
Warrants
January 29,
2014
Series K
Warrants
February 28
2014
Series K
Warrants
June 30,
2014
Series K
Warrants
November 12,
2014
36
136.1
0.39%
$
$
0.3125
0.20
36
152.4
0.39%
$
$
0.3125
0.30
36
152.7
0.39%
$
$
0.425
0.37
36
153.9
0.90%
$
0.375
$
0.29
36
153.9
0.90%
0.3125
0.23
$
$
The holders of Series K Convertible Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company
for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting),
except as required by law.
Series K Warrants
The warrants issued in the Private Placement have an exercise price equal to $0.3125 per share, for the December 12, 2013 and January
29, 2014 warrants, $0.425 per share for the February 28, 2014 warrants, $0.375 per share for the June 30, 2014 warrants and $0.3125 per share
for the November 12, 2014 warrants, with a term expiring three years from the issuance date. The warrants also permit the holder to conduct a
“cashless exercise” at any time the holder of the warrant is an affiliate of the Company. The exercise price and/or number of shares issuable
upon exercise of the warrants will be subject to adjustment for stock dividends, stock splits or similar capital reorganizations, as set forth in the
warrant agreement.
Subject to the terms and conditions of the warrants, at any time commencing six months from the closing date of the sale of Units under
the Securities Purchase Agreement the Company has the right to call the warrants for cancellation if the volume weighted average price of its
common stock on the OTC QB Market (or other primary trading market or exchange on which the common stock is then traded) equals or
exceeds three times the per share exercise price of the warrants for either (i) 10 consecutive trading days or (ii) 15 out of 25 consecutive
trading days.
Registration Rights Agreement
In connection with the Private Placement, the Company has agreed that, if, at any time after February 1, 2014, the Company files a
Registration Statement relating to an offering of equity securities of the Company (the “Registration Statement”), subject to certain
exceptions, including a Registration Statement relating solely to an offering or sale of securities having an aggregate public offering price of
less than $5,000,000, the Company shall include in the Registration Statement the resale of the shares of common stock underlying the
warrants. Shares of common stock issued upon conversion of Series K Convertible Preferred Stock or in payment of the dividend on the
Series K Convertible Preferred Stock will not be registered and will not be subject to registration rights. This right is subject to customary
conditions and procedures.
73
Common Stock
Shareholders Purchase Rights Plan
On March 3, 2003, our Board of Directors adopted a shareholder purchase rights plan (“the Rights Plan”) and declared a distribution of
one Right for each outstanding share of our common stock to shareholders of record at the close of business on March 21, 2003 (the
“Rights”). Initially, the Rights will trade automatically with the common stock and separate Right Certificates will not be issued. The Rights
Plan is designed to deter coercive or unfair takeover tactics and to ensure that all of our shareholders receive fair and equal treatment in the
event of an unsolicited attempt to acquire the Company. The Rights Plan was not adopted in response to any effort to acquire the Company
and the Board is not aware of any such effort. The Rights will expire on February 27, 2013 unless earlier redeemed or exchanged. Each Right
entitles the registered holder, subject to the terms of a Rights Agreement, to purchase from the Company one one-thousandth of a share of the
Company’s Series A Junior Participating Preferred Stock at a purchase price of $45.00 per one one-thousandth of a share, subject to
adjustment. In general, the Rights will not be exercisable until a subsequent distribution date which will only occur if a person or group
acquires beneficial ownership of 15% or more of our common stock or announces a tender or exchange offer that would result in such person
or group owning 15% or more of the common stock. With respect to any person or group who currently beneficially owns 15% or more of our
common stock, the Rights will not become exercisable unless and until such person or group acquires beneficial ownership of additional
shares of common stock.
Subject to certain limited exceptions, if a person or group acquires beneficial ownership of 15% or more of our outstanding common
stock or if a current 15% beneficial owner acquires additional shares of common stock, each holder of a Right (other than the 15% holder
whose Rights become void once such holder reaches the 15% threshold) will thereafter have a right to purchase, upon payment of the
purchase price of the Right, that number of shares of our common stock which at the time of such transaction will have a market value equal
to two times the purchase price of the Right In the event that, at any time after a person or group acquires 15% or more of our common stock,
we are acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold,
each holder of a Right will thereafter have the right to purchase, upon payment of the purchase price of the Right, that number of shares
of common stock of the acquiring company which at the time of such transaction will have a market value of two times the purchase price of
the Right.
Our Board of Directors may exchange the Rights (other than Rights owned by such person or group which have become void), in whole
or in part, at an exchange ratio of one share of common stock per Right (subject to adjustment). At any time prior to the time any person or
group acquires 15% or more of our common stock, the Board of Directors may redeem the Rights in whole, but not in part, at a price of $0.001
per Right.
Stock Options and Warrants
Our stockholders approved our amended 2005 Equity Incentive Plan (the “Plan”) pursuant to which an aggregate of 1,800,000 shares of
our common stock were reserved for issuance upon exercise of stock options or other equity awards made under the Plan. Under the Plan, we
may award stock options, shares of common stock, and other equity interests in the Company to employees, officers, directors, consultants,
and advisors, and to any other persons the Board of Directors deems appropriate. As of December 31, 2014, options to acquire 1,720,750
shares were outstanding under the Plan with 79,250 shares available for future grant under the Plan.
As of December 31, 2014, options to acquire 10,000 shares are outstanding under the 1999 Non-qualified Stock Option Plan. No
additional options may be granted under the 1999 Non-qualified Stock Option Plan.
On December 12, 2013 at the Company’s special meeting the shareholders approved the 2013 Equity Incentive Plan (the “ 2013 Plan”)
pursuant to which 3,000,000 shares of our common stock were reserved for issuance upon exercise of stock options or other equity awards
under the 2013 Plan. Under the Plan, we may award stock options, shares of common stock, and other equity interests in the Company to
employees, officers, directors, consultants, and advisors, and to any other persons the Board of Directors deems appropriate. As of December
31, 2014 1,675,500 options have been granted under the 2013 Plan.
All of the outstanding options had an exercise price that was above the Company’s common stock share price on December 31, 2014.
74
The following tables summarize information concerning options and warrants outstanding and exercisable:
Stock Options
Weighted
Average price
Warrants
Weighted
Average price
Total
Balance outstanding, January 1, 2013
Granted
Exercised
Expired
Forfeited
Balance outstanding, December 31,
2013
Granted
Exercised
Expired
Forfeited
Balance outstanding, December 31,
2014
Shares
1,605,750
363,500
-
$
(10,000)
(187,542)
$
1,771,708
1,675,500
-
(10,000)
(30,985)
3,406,250
$
per share
0.80
0.41
-
1.00
.85
0.71
0.30
-
1.00
.71
0.51
Shares
6,687,099
8,346,228
-
$
(21,000)
-
$
15,012,327
8,903,000
(4,208,658)
(524,468)
-
19,182,201
$
per share
0.81
0.37
-
2.38
-
0.57
0.38
.25
.74
-
0.49
Exercisable
7,989,331
Shares
8,292,849
8,709,728
-
(31,000)
(187,542)
16,611,528
16,784,035
10,578,500
(4,208,658)
(534,468)
(30,958)
22,588,451
20,858,111
The weighted average grant date fair value of options issued was $0.25 for the year ending December 31, 2014.
Range of Exercise
Prices
$0.30-$0.39
0.40-0.49
0.50-0.59
0.60-0.69
0.70-1.25
$0.30-$1.25
Number of
Options
1,675,500
311,000
251,250
467,500
701,000
3,406,250
Options Outstanding
Weighted Average
Remaining
Contractual Life
(Years)
Exercise Price
Number of
Options
Options Exercisable
Weighted Average
Remaining
Contractual Life
(Years)
Exercise Price
9.7
8.4
7.6
5.0
2.2
5.1
$
$
0.30
0.40
0.50
0.60
1.00
0.51
-
311,000
251,250
433,283
680,377
1,675,910
-
8.4
7.6
4.8
2.1
4.8
$
$
-
0.40
0.50
0.60
1.00
0.72
There was $323,811 of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested stock options granted as
of December 31, 2014. This cost is expected to be recognized over a period of 2.1 years, and will be adjusted for any future changes in
estimated forfeitures.
Common Stock Issuances
On February 1, 2013, we issued 100,000 shares of restricted common stock to an investor relations firm in payment of services to be
rendered over eight months. We recorded $40,000 for this issuance of which will be amortized over the eight months. On March 18, 2013, we
issued 200,000 shares of restricted common stock to an investor relations firm for payment of services to be rendered over eight months. We
recorded $80,000 for this issuance as expense. On August 1, 2013, we issued 200,000 shares of restricted common stock to an investor
relations firm for payment of services to be rendered over six months. We recorded $80,000 for this issuance and recognized $66,087 as
expense in 2013 with $13,913 to be expensed in 2014. On September 1, 2013, we issued 200,000 shares of restricted common stock to an
investor relations firm for payment of services to be rendered over three months. We recorded $80,000 for this issuance which was recorded as
expense in 2013. On September 10, 2013, we issued 100,000 shares of restricted common stock to an investor relations firm for payment of
services to be rendered over four months. We recorded $40,000 for this issuance and recognized expense of $36,721 in 2013 with $3,279 to be
expensed in 2014. On December 23, 2014 we issued 75,000 shares of restricted common stock to a lender in connection with the sale of
debentures. We recognized $17,250 as deferred financing costs that will be recognized over the life of the note. We valued the above stock
issuances using the greater of the estimated fair value of the services received or the Company’s stock price on date of issuance.
75
On August 1, 2013, we issued 200,000 shares of restricted common stock to an investor relations firm for payment of services to be
rendered over six months. We recorded $80,000 for this issuance and recognized $66,087 as expense in 2013 and $13,913 was expensed in the
period ended March 31, 2014. On September 10, 2013, we issued 100,000 shares of restricted common stock to an investor relations firm for
payment of services to be rendered over four months. We recorded $40,000 for this issuance and recognized expense of $36,721 in 2013 with
$3,279 expensed in the period ended March 31, 2014. On December 23, 2013 we issued 75,000 shares of restricted common stock to a lender
in connection with the sale of debentures. We recognized $17,250 as deferred financing costs that will be recognized over the life of the
note. We valued the above stock issuances using the greater of the estimated fair value of the services received or the Company’s stock price
on date of issuance.
On February 10, 2014 a lender, with the prior approval of the Company, chose to convert $37,500 of their outstanding note balance into
150,000 shares of the Company’s common stock.
On June 23, 2014 a lender, with the prior approval of the Company, chose to convert $50,000 of their outstanding note balance into
200,000 shares of the Company’s common stock.
In March and April 2014, a Series D warrant holder exercised warrants to purchase 596,658 shares of common stock resulting in net
proceeds to the Company of $149,164.
In April 2014 we issued 733,169 shares of common stock to holders of Series G Convertible Preferred Stock for the conversion of 58,750
shares of preferred and $58,267 of accrued and unpaid dividends on the Series G Convertible Preferred Stock. We also issued 92,500 shares of
common stock to holders of Series J Convertible Preferred Stock for the conversion of 92.5 shares of Series J Convertible Preferred Stock.
In July 2014 we issued 1,517,466 shares of common stock to holders of Series J Convertible Preferred Stock for the conversion of 1,449
shares of preferred and $24,648 of accrued and unpaid dividends on the Series J Convertible Preferred Stock. On August 13. 2014 we issued
200,000 shares of common stock to an investor relations firm for services. The Company recorded $52,000 as expense related to these
services. On September 9, 2014 we issued 75,000 shares of commons stock to a lender as a fee for a $175,000 loan. On September 18, 2014
we issued 75,000 shares of common stock to and investor relations firm as payment for services provided to the Company in 2014. The
Company recorded $44,250 in expense related to this transaction.
On September 22, 2014 the Company issued 64,000 shares of common stock for the conversion of 64 shares of Series K Preferred
Convertible Stock. On December 22, 2014 the Company issued 1,035,000 shares of common stock for the conversion of 1,035 shares of
Series K Preferred Convertible Stock.
In December we issued a total of 160,000 shares of common stock to a lender in exchange for $49,000 of outstanding loans and fees. We
also issued a total of 238,830 shares of common stock to four investor relations firms for services provided.
On December 23, 2014 we issued 3,612,000 shares of common stock for the exercise of warrants in a warrant reset agreement. 2,100,000
of these common stock shares were converted to Series H2 Convertible Preferred Stock.
Warrant Reset Agreement
On December 23, 2014, The Company closed a series of Warrant Reset Agreements (“ Warrant Reset Agreements ”) with 30 warrant
holders (the “Warrant Holders”) in order to re-price their Common Stock Purchase Warrants (the “Warrants”). In consideration for the Warrant
Holder exercising their outstanding Warrants by or before December 23, 2014, the Company agreed to reduce the exercise price to $0.25 per
warrant share. In addition, for each warrant exercised (the “Exercised Warrant”), the Warrant Holder received a New Warrant (the “ New
Warrant”) to purchase that same number of Warrant Shares as exercised, at an exercise price of $0.40 per share. If the Exercised Warrant
terminated on or before December 31, 2015, the date of termination of the New Warrant was December 31, 2015. If the date of termination of
the Exercised Warrant was after December 31, 2015, the date of termination of the New Warrant was the same as that of the Exercised
Warrant.
As a result of the Warrant Reset Agreements, the Company received $903,000 from the exercise of warrants and incurred $40,481 in fees.
The Company has issued New Warrants for 3,612,000 warrant shares, and has requested its transfer agent to issue 3,612,000 shares of
restricted Common Stock (the “Exercised Warrant Shares”) to the investors. Neither the Exercised Warrant Shares nor the shares underlying
the New Warrants will be registered for sale pursuant to a registration statement.
The Company estimated the fair value of the New Warrants issued in the transaction using the Black-Scholes pricing model. $163,654 of the
net proceeds was allocated to the New Warrants.
76
Warrant Derivative Liability
The Series D Warrants issued in connection with the registered direct offering of Series D Convertible Preferred are measured at fair
value and liability-classified because the Series D Warrants contain “down-round protection” and therefore, do not meet the scope exception
for treatment as a derivative under ASC 815, Derivatives and Hedging, (“ASC 815”). Since “down-round protection” is not an input into the
calculation of the fair value of the warrants, the warrants cannot be considered indexed to the Company’s own stock which is a requirement
for the scope exception as outlined under ASC 815. The estimated fair value of the warrants was determined using the binomial model,
resulting in an allocation of the gross proceeds $283,725 to the warrants issued in the Series D registered direct offering. The fair value will be
affected by changes in inputs to that model including our stock price, expected stock price volatility, the contractual term, and the risk-free
interest rate. We will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire or are amended in a
way that would no longer require these warrants to be classified as a liability, whichever comes first. The down-round protection for the Series
D Warrants survives for the life of the Series D Warrants which ends in May 2017. During the year ended December 31, 2014 a total of
596,658 warrants were exercised at an exercise price of $0.25 resulting in net proceeds to the Company of $149,165.
The assumptions for the binomial pricing model are represented in the table below for the warrants issued in the Series D private
placement reflected on a per share common stock equivalent basis.
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per warrant
November 10,
2011
Warrants
revalued at
December 31,
2013
Warrants
revalued at
December 31,
2014
60.0
104.5%
0.875%
$
0.81
$
0.54
34.0
154.8%
0.78%
$
0.25
$
0.21
22.0
116.0%
0.58%
0.25
0.15
$
$
As of December 31, 2014, the value of the Series D Warrants had decreased to $159,875.
Conversion Option Liability
The Company signed seven convertible notes and has determined that conversion options are embedded in the notes and it is required to
bifurcate the conversion option from the host contract under ASC 815 and account for the derivatives at fair value. The estimated fair value of
the conversion options was determined using the binomial model. The fair value of the conversion options will be classified as a liability until
the debt is converted by the note holders or paid back by the Company. The fair value will be affected by changes in inputs to that model
including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. We will continue to classify the
fair value of the conversion options as a liability until the conversion options are exercised, expire or are amended in a way that would no
longer require these conversion options to be classified as a liability, whichever comes first. The Company has adopted a sequencing policy
that reclassifies contracts (from equity to liabilities) with the most recent inception date first. Thus any available shares are allocated first to
contracts with the most recent inception dates.
The assumptions for the binomial pricing model are disclosed in Note 2. As of December 31, 2014, the value of the Conversion Option
liability was $590,341.
(10) Subsequent Events
We performed a review of events subsequent to the balance sheet date through the date the financial statements were issued and
determined, except as disclosed herein, that there were no other such events requiring recognition or disclosure in the financial statements.
● From February 2, 2015 thru March 30, 2015 the Company signed 11 notes for convertible debt totaling $1,121,250.
●
From January 15, 2015 thru March 19, 2015 the Company signed 3 merchant debt agreements for approximately $330,000 in net
proceeds.
● The Company repaid convertible notes along with prepayment penalties and accrued interest of $646,201.
●
January 21, 2015, we announced we had received over $1.16 million during the previous two months from equity investments and
that we planned to expand marketing, sales and operations capabilities.
● February 10, 2015 we announced we had received to first order for our Barozyme HT48 High Throughput System
●
February 19, 2015 we announced we had been awarded a $1,000,000 NIH SBIR Phase II Grant to support the development of a
high-throughput, automated, high pressure based DNA Shearing System
● March 12, 2015 we announced the release of PCT-HD "The Next Generation Protein Preparation System"
77
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
ITEM 9.
DISCLOSURE.
None
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities
Exchange Act of 1934 filings are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer
(Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as
ours are designed to do, and management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
As of December 31, 2014, we carried out an evaluation, under the supervision and with the participation of our management, including our
principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our principal
executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of December 31,
2014 due to limited resources for adequate personnel to prepare and file reports under the Securities Exchange Act of 1934 within the required
periods, and material weaknesses in our internal control over financial reporting relating to our accounting for complex equity transactions as
described below under the heading “Report of Management on Internal Control over Financial Reporting”. Management plans to remediate
this weakness by taking the actions described below.
Report of Management on Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by, or under the supervision of our
principal executive and principal financial officers and effected by our board of directors, management and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those policies and procedures that:
● pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets;
● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of
our management and directors; and
● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.
Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the
preparation and fair presentation of financial statements. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We have assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment,
we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-
Integrated Framework 1992.
78
Based on this assessment, management believes that, as of December 31, 2014, the Company did not maintain effective internal control
over financial reporting because of the effect of a material weakness in our internal control over financial reporting discussed below.
Public Company Accounting Oversight Board Auditing Standard No. 2 defines a material weakness as a significant deficiency, or
combination of significant deficiencies, that results in there being a more than remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected on a timely basis. Based upon this definition, our management concluded that, as
of December 31, 2014, a material weakness existed in our internal control over financial reporting related to accounting for complex equity
transactions.
Specifically, we identified material weaknesses in our internal control over financial reporting related to the following matters:
● We identified a lack of sufficient segregation of duties. Specifically, this material weakness is such that the design over these areas
relies primarily on detective controls and could be strengthened by adding preventative controls to properly safeguard Company
assets.
● Management has identified a lack of sufficient personnel in the accounting function due to our limited resources with appropriate
skills, training and experience to perform the review processes to ensure the complete and proper application of generally accepted
accounting principles, particularly as it relates to valuation of warrants and other complex debt /equity transactions. Specifically, this
material weakness led to segregation of duties issues and resulted in audit adjustments to the annual consolidated financial
statements and revisions to related disclosures, valuation of warrants and other equity transactions.
Our plan to remediate those material weaknesses is as follows:
● Improve the effectiveness of the accounting group by augmenting our existing resources with additional consultants or employees
to improve segregation procedures and to assist in the analysis and recording of complex accounting transactions. We plan to
mitigate the segregation of duties issues by hiring an independent consultant once we generate significantly more revenue or raise
significant additional working capital.
● Improve segregation procedures by strengthening cross approval of various functions including quarterly internal audit procedures
where appropriate.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the fourth quarter of 2014 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION.
None.
79
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
The following table sets forth information about the individuals who serve as our directors as of December 31, 2014.
Name
Richard T. Schumacher
Jeffrey N. Peterson
Dr. Mickey Urdea
Vito J. Mangiardi
Kevin A. Pollack
Age
64
59
63
66
44
Position
Board Committees
President, Chief Executive Officer, Treasurer,
Clerk and Director
Chairman of the Board
Director
Director
Director
Audit, Compensation,
Nominating
Audit, Compensation,
Nominating
Audit, Compensation,
Nominating
Term of office
2017
2015
2015
2016
2016
The following noteworthy experience, qualifications, attributes and skills for each Board member, together with the biographical
information for each nominee described below, led to our conclusion that the person should serve as a director of PBI in light of our business
and structure:
● Mr. Richard T. Schumacher, the Company’s founder, provides valuable operational, sales and marketing, financial, and
management expertise and experience and has significant knowledge of the Company’s technology and products. Prior to founding
the Company, Mr. Schumacher spent over 16 years working in the clinical research setting. In the more than 30 years since the
Company’s formation, Mr. Schumacher has served the Company in various roles, including President, Chief Executive Officer and
Chairman.
● Mr. Jeffrey N. Peterson, the Chairman of our Board, is the CEO of Target Discovery, Inc., a personalized medicine diagnostics
company, and has broad executive, general management, multi-functional, multi-business, and international experience.
● Mr. Vito J. Mangiardi has broad executive, general management, multi-functional, multi-business, and international experience,
specifically in the life sciences field.
● Mr. Kevin A. Pollack provides a wealth of knowledge and experience in financial and administrative matters. Mr. Pollack recently
served as managing director of Paragon Capital LP, a private investment firm, and serves as Chief Financial Officer of Lightlake
Therapeutics Inc.
● Dr. Michael S. “Mickey” Urdea offers significant scientific and technical experience from leading research and development
programs in both small and large life sciences companies, and entrepreneurial experience from founding and leading successful
personalized medicine and consulting companies in the biotechnology field.
Mr. Richard T. Schumacher, the founder of the Company, has served as a director of the Company since 1978. He has served as the
Company’s CEO since April 16, 2004 and president since September 14, 2004. He previously served as CEO and chairman of the Board of
the Company from 1992 to February 2003. From July 9, 2003 until April 14, 2004 he served as a consultant to the Company pursuant to a
consulting agreement. He served as president of the Company from 1986 to August 1999. Mr. Schumacher served as the Director of Infectious
Disease Services for Clinical Sciences Laboratory, a New England-based medical reference laboratory, from 1986 to 1988. From 1972 to
1985, Mr. Schumacher was employed by the Center for Blood Research, a nonprofit medical research institute associated with Harvard
Medical School. Mr. Schumacher received a B.S. in Zoology from the University of New Hampshire.
80
Mr. Jeffrey N. Peterson has served as a director since July 2011 and as our board chairman since July 2012. Since 1999, he has served as
the chief executive officer of Target Discovery, Inc. (“TDI”), a personalized medicine diagnostics (PMDx) company. Mr. Peterson also serves
as Chairman of TDI’s majority-owned subsidiary, Veritomyx, Inc., which is completing development and commercialization of a tool in
accurate peptide, protein and isoform identification and characterization. Prior to joining TDI, Mr. Peterson served as CEO of Sharpe,
Peterson, Ocheltree & Associates, an international business development consulting firm assisting Fortune 500 and many smaller firms in
business expansion and strategy, for three years prior to incorporating TDI. Prior to that, he spent 9 years in key management roles in Abbott
Laboratories’ Diagnostics and International (Pharmaceuticals, Hospital Products, Nutritionals, and Consumer) businesses, last serving as CEO
and General Manager of Abbott South Africa. Mr. Peterson’s experience prior to Abbott Laboratories included 11 years with General
Electric’s Engineered Materials and Plastics businesses, spanning roles in strategic planning, business development, technology licensing,
marketing and sales, operations, quality control and R&D. Mr. Peterson holds BSChE and MSChE (Chemical Engineering) degrees from
MIT. He serves as Chair Emeritus of the BayBio Institute, a non-profit organization serving the life science community, and on the board of
BayBio, a trade association for the life sciences industry in Northern California. He is a member of the Coalition for 21st Century Medicine,
and of BIO’s Personalized Medicine & Diagnostics Group. Mr. Peterson has served on the board of directors SanGlobal Ed Corp. (d/b/a
MyVerse), a teen and collegiate personal and professional development web and mobile resource site. Mr. Peterson serves on the Advisory
Board for the University of Texas, MD Anderson Cancer Center, Center for Professional Development and Entrepreneurship.
Mr. Vito J. Mangiardi has served as a director since July 2012. Mr. Mangiardi is a senior executive with experience as a President, CEO
and COO in the Life Sciences and Bio Energy product and service sectors. He is a corporate strategist in General Management, Operations,
Sales/Marketing, and Science. Mr. Mangiardi has held positions as a Research Chemist for Bio-Rad Laboratories, Inc.; Sales & Marketing
Director for Baxter Travenol, Inc.; Executive VP and COO for Quintiles Transnational Corp.; President and CEO of Diagnostics Laboratories,
Inc., Clingenix, Inc., and Bilcare, Inc.; and President of AAI Pharma, Inc. More recently he was the COO/Deputy Director of Operations and
Production at the University of California Lawrence Berkeley National Laboratory Joint Genome Institute. Mangiardi earned a BS in
Biology/Chemistry from Eastern Illinois University and two MBA degrees from Golden Gate University - in General Management and in
Marketing. Mr. Mangiardi is listed as an inventor in eight patents and is a member of numerous professional organizations.
Mr. Kevin A. Pollack has served as a director since July 2012. Mr. Pollack serves as President of Short Hills Capital LLC, where he has
provided a range of advisory services to investors, asset management firms, institutions, and companies. Previously, he worked in asset
management at Paragon Capital, and as an investment banker at Banc of America Securities LLC, focusing on corporate finance and mergers
and acquisitions. He started his career at Sidley Austin LLP (formerly Brown & Wood LLP) as a securities attorney focusing on corporate
finance, and on mergers and acquisitions. Mr. Pollack currently sits on the Board of Directors of Lightlake Therapeutics Inc., a developing
biopharmaceutical company focused on building a platform of biopharmaceutical solutions to common addictions and related disorders, where
he also serves as CFO, and on the Board of Directors of MagneGas Corporation, the developer of a technology that converts liquid waste into
a hydrogen-based metal working fuel and natural gas alternative. Mr. Pollack graduated magna cum laude from The Wharton School of the
University of Pennsylvania and received a dual JD/MBA from Vanderbilt University, where he graduated with Beta Gamma Sigma honors.
Dr. Michael S. “Mickey” Urdea founded and is a Managing Partner for Halteres Associates, a biotechnology consulting firm. He also
founded and served as Chief Executive Officer of Tethys Bioscience, a proteomics-based diagnostics company involved in preventative
personalized medicine. Additionally, Dr. Urdea is a founder and the Chairman of Catalysis Foundation for Health, an organization addressing
gaps in global healthcare caused by inefficiencies in disease diagnosis and monitoring. He serves as an expert consultant to the life sciences
industry and is on the scientific advisory boards and boards of directors of a number of biotechnology, diagnostics, venture capital and
philanthropic organizations. Prior to his current business activities, Dr. Urdea founded the Nucleic Acid Diagnostics group at Chiron
Corporation, and with colleagues, invented branched DNA molecules for amplification of signal in nucleic acid complexes. Application of this
technology resulted in the first commercial products for quantification of human hepatitis B, hepatitis C, and human immunodeficiency
viruses (HBV, HCV, and HIV, respectively). He then became business head of the Molecular Diagnostics group and Chief Scientific Officer
at Bayer Diagnostics. He was also a member of the Bill and Melinda Gates Foundation Diagnostic Forum. Dr. Urdea is an author on nearly
200 peer-reviewed scientific publications, nearly 300 abstracts and international scientific presentations, and more than 100 issued and
pending patents. He received his BS in Biology and Chemistry from Northern Arizona University in Flagstaff and his Ph.D in Biochemistry
from Washington State University.
Executive Officers
The information under the heading “Executive Officers of the Registrant” in Item 1 of Part I of this Annual Report on Form 10-K is
incorporated herein by this reference.
81
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who own more than 10% of the
Company’s common stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC.
Based solely on the Company’s review of the copies of such Forms and written representations from certain reporting persons, the
Company believes that all filings required to be made by the Company’s Section 16(a) reporting persons during the Company’s fiscal year
ended December 31, 2014 were made on a timely basis, except one outside investor.
Code of Ethics
Pursuant to Section 406 of the Sarbanes-Oxley Act of 2002, we have adopted a Code of Ethics for senior financial officers that applies to
our principal executive officer, principal financial officer, principal accounting officer, controller, and other persons performing similar
functions. A copy of the code of ethics is posted on, and may be obtained free of charge from our Internet website at
http://www.pressurebiosciences.com. If we make any amendments to this Code of Ethics or grant any waiver, including any implicit waiver,
from a provision of this Code of Ethics to our principal executive officer, principal financial officer, principal accounting officer, controller, or
other persons performing similar functions, we will disclose the nature of such amendment or waiver, the name of the person to whom the
waiver was granted and the date of waiver in a Current Report on Form 8-K.
Corporate Governance
Term of Office
Our directors are appointed for a three-year term to hold office until the annual general meeting of our shareholders or until removed
from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Audit Committee
The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. Messrs. Pollack
(chairman), Mangiardi and Peterson are currently the members of the Audit Committee.
The Board of Directors has determined that Mr. Pollack qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of
Regulation S-K and is “independent” as defined by SEC and OTC Market rules.
The Audit Committee operates pursuant to a written charter (the “Audit Committee Charter”), a current copy of which is publicly available
on the investor relations portion of the Company’s website at www.pressurebiosciences.com. Under the provisions of the Audit Committee
Charter, the primary functions of the Audit Committee are to assist the Board of Directors with the oversight of (i) the Company’s financial
reporting process, accounting functions, and internal controls, and (ii) the qualifications, independence, appointment, retention, compensation,
and performance of the Company’s independent registered public accounting firm. The Audit Committee is also responsible for the
establishment of “whistle-blowing” procedures, and the oversight of other compliance matters.
Compensation Committee
The Board of Directors has a Compensation Committee, consisting of Messrs. Peterson, Pollack and Mangiardi. The Compensation
Committee’s duties include (i) reviewing and approving our executive compensation, (ii) reviewing the recommendations of the president and
chief executive officer regarding the compensation of our executive officers, (iii) evaluating the performance of the president and chief
executive officer, (iv) overseeing the administration and approval of grants of stock options and other equity awards under our equity incentive
plans, and (v) recommending compensation for our board of directors and each committee thereof for review and approval by the board of
directors. The Compensation Committee operates pursuant to a written charter, a current copy of which is publicly available on the investor
relations portion of our website at www.pressurebiosciences.com.
82
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past ten years:
● been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor
offenses);
● had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business
association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior
to that time;
● been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his
involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities,
or to be associated with persons engaged in any such activity;
● been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been
reversed, suspended, or vacated;
● been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged
violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or
insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil
money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting
mail or wire fraud or fraud in connection with any business entity; or
● been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the
Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its
members or persons associated with a member.
Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive
officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to
be disclosed pursuant to the rules and regulations of the Commission.
83
ITEM 11. EXECUTIVE COMPENSATION
Executive Officer Compensation
Summary Compensation Table
The Summary Compensation Table below sets forth the total compensation paid or earned for the fiscal years ended December 31, 2014 and
2013 for: (i) each individual serving as our chief executive officer (“CEO”) or acting in a similar capacity during any part of fiscal 2014; and
(ii) the other two most highly paid executive officers (collectively, the “Named Executive Officers”) who were serving as executive officers at
the end of fiscal 2014.
Name and Principal
Position
Fiscal
Year
Salary(1)
Bonus
Stock Awards
Richard T. Schumacher
President, CEO
2014
2013
$ 294,250
294,250
$
Edmund Ting, Ph.D
Senior Vice President of
Engineering
2014
197,600
2013
197,600
Alexander Lazarev,
Ph.D
Vice President of
Research and
Development
2014
165,600
2013
165,600
$
-
-
-
-
-
-
-
-
-
-
-
-
Non-Qualified
Deferred
Compensation
Earning
Option
Awards(2)
$
$
71,910
26,497
47,940
19,078
35,955
15,898
All other
Compensation(3)
Total
$
70,880
11,524
$ 437,040
332,271
1,670
247,210
1,670
218,348
7,910
209,465
7,655
189,153
-
-
-
-
-
-
(1) Salary refers to base salary compensation paid through our normal payroll process. No bonus was paid to any named executive officer for
2014 or 2013.
(2) Amounts shown do not reflect compensation received by the Named Executive Officers. Instead, the amounts shown are the aggregate
grant date fair value as determined pursuant to FASB ASC 718, Compensation-Stock Compensation. Please refer to Note 2, xiii, “Accounting
for Stock-Based Compensation” in the accompanying Notes to Consolidated Financial Statements for the fiscal year ended December 31,
2014, for the relevant assumptions used to determine the valuation of stock option grants.
(3) “All Other Compensation” includes our Company match to the executives’ 401(k) contribution and premiums paid on life insurance for
the executives. Both of these benefits are available to all of our employees. In the case of Mr. Schumacher, “All Other Compensation” also
includes $16,758 in premiums we paid for a life insurance policy to which Mr. Schumacher’s wife is the beneficiary and $50,927 in payments
for earned but unused paid time off. “All Other Compensation” for Dr. Lazarev includes $6,000 paid to Dr. Lazarev in lieu of his
participation in the medical benefit plan offered by the Company.
84
Outstanding Equity Awards at Fiscal Year End
The following table sets forth certain information regarding outstanding stock options awards for each of the Named Executive Officers
as of December 31, 2014.
Name
Richard T. Schumacher
President, CEO
Edmund Y. Ting, Ph.D
Senior Vice President of Engineering
Alexander V. Lazarev, Ph.D
Vice President of Research & Development
Option Awards
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(1)
75,000
30,000
70,000
75,000
12,188
20,625
75,000
-
60,000
12,000
42,000
12,188
12,031
54,000
-
50,000
10,000
35,000
12,188
10,313
45,000
-
-
-
-
-
2,812
9,375
-
300,000
-
-
-
2,812
5,469
-
200,000
-
-
-
2,812
4,687
-
150,000
Option
Exercise
Price
($)
Option Expiration Date
$
$
$
$
$
$
$
(2) $
$
$
$
$
$
$
(2) $
$
$
$
$
$
$
(2) $
1.00
1.00
1.00
0.60
1.00
0.60
0.40
0.30
1.00
1.00
1.00
1.00
0.60
0.40
0.30
1.00
1.00
0.60
1.00
0.60
0.40
0.30
6/17/2015
3/30/2016
2/12/2017
3/12/2019
9/09/2021
3/13/2022
5/14/2023
9/24/2024
4/24/2016
3/30/2016
2/12/2017
9/09/2021
3/13/2022
5/14/2023
9/24/2024
6/17/2015
3/30/2016
2/12/2017
9/09/2021
3/13/2022
5/14/2023
9/24/2024
(1) All unvested stock options listed in this column were granted to the Named Executive Officer pursuant to our 2005 Equity Incentive
Plan and 2013 Equity Incentive Plan. All options expire ten years after the date of grant. Unvested stock options become fully vested
and exercisable upon a change of control of our Company.
(2)
Options to purchase shares of common stock were granted on September 24, 2014 to each of the Named Executive Officers, of
which 1/6th of the stock options will vest six months from the date of grant while the remainder will vest monthly over the
remaining three year vesting period.
Retirement Plan
All employees, including the named executive officers, may participate in our 401(k) Plan. Under the 401(k) Plan, employees may elect to
make before tax contributions of up to 60% of their base salary, subject to current Internal Revenue Service limits. The 401(k) Plan does not
permit an investment in our common stock. We match employee contributions up to 50% of the first 2% of the employee’s earnings. Our
contribution is 100% vested immediately.
Severance Arrangements
Each of Mr. Schumacher, Dr. Ting, Dr. Lazarev, and Dr. Lawrence, executive officers of the Company, are entitled to receive a severance
payment if terminated by us without cause. The severance benefits would include a payment in an amount equal to one year of such executive
officer’s annualized base salary compensation plus accrued paid time off. Additionally, the officer will be entitled to receive medical and
dental insurance coverage for one year following the date of termination.
85
Change-in-Control Arrangements
Pursuant to severance agreements with each of Mr. Schumacher, Dr. Ting, Dr. Lazarev and Dr. Lawrence, each such executive officers, is
entitled to receive a change of control payment in an amount equal to one year (other than Mr. Schumacher) of such executive officer’s
annualized base salary compensation, accrued paid time off, and medical and dental coverage, in the event of a change of control of our
Company. In the case of Mr. Schumacher, his payment is equal to two years of annualized base salary compensation, accrued paid time off,
and two years of medical and dental coverage.
Pursuant to our 2005 Equity Incentive Plan, any unvested stock options held by a named executive officer will become fully vested upon a
change in control (as defined in the 2005 Equity Incentive Plan) of our Company.
Director Compensation and Benefits
The following table sets forth certain information regarding compensation earned or paid to our directors during fiscal 2014.
Name
Jeffrey N. Peterson (a,b)
Vito J. Mangiardi (b)
Kevin A. Pollack (b)
Dr. Mickey Urdea (a)
Fees Paid in
Cash (1)
Fees Paid in
Stock (1)
Option Awards
(2)(3)
$
$
34,125
5,000
5,000
5,000
$
17,250
22,500
22,500
22,500
$
46,622
23,970
23,970
23,970
Total
97,997
51,470
51,470
51,470
Our non-employee directors receive the following compensation for service as a director:
(1) Each director currently earns a quarterly stipend of $10,000 (the quarterly stipend was increased from $7,500 beginning July 2014)
for attending meetings of the full board of directors (whether telephonic or in-person) and attending committee meetings in 2014. Mr.
Peterson currently earns $15,000 per quarter as chairman of the board of directors and Dr. Urdea receives $2,500 per quarter for
serving on the scientific advisory committee. We issued an aggregate of 339 shares of the Company’s Series K Convertible Preferred
Stock in January 2014 to current board members for payment of current and future board fees. Amounts shown under the heading “Fees
Paid in Stock” reflect compensation received by the directors based on grant date fair value of the stock issued to the directors. There
is no limit to the number of board of directors or committee meetings that may be called.
(2) Amounts shown do not reflect compensation received by the directors. Instead, the amounts shown are the aggregate grant date
fair value as determined pursuant to FASB ASC 718, Compensation-Stock Compensation. Please refer to Note 2, xiii, “Accounting for
Stock-Based Compensation” in the accompanying Notes to the Consolidated Financial Statements for the fiscal year ended December
31, 2014, for the relevant assumptions used to determine the valuation of stock option grants.
(3) The following table shows the total number of outstanding stock options as of December 31, 2014 that have been issued as director
compensation.
Name
Jeffrey N. Peterson
Michael S. Urdea
Vito J. Mangiardi
Kevin A. Pollack
86
Aggregate
Number of
Stock Options
Outstanding
283,250
137,500
150,000
150,000
Report from Compensation Committee
General
Messrs. Peterson, Pollack and Mangiardi are currently the members of the Compensation Committee. The Compensation Committee
operates pursuant to a written charter, a current copy of which is publicly available on the investor relations portion of our website at
www.pressurebiosciences.com. The primary functions of the Compensation Committee include (i) reviewing and approving our executive
compensation, (ii) reviewing the recommendations of the president and chief executive officer regarding the compensation of our executive
officers, (iii) evaluating the performance of the president and chief executive officer, (iv) overseeing the administration and approval of grants
of stock options and other equity awards under our equity incentive plans, and (v) recommending compensation for our board of directors and
each committee thereof for review and approval by the board of directors.
The Compensation Committee may form and delegate authority to one or more subcommittees as it deems appropriate from time to time
under the circumstances (including (a) a subcommittee consisting of a single member and (b) a subcommittee consisting of at least two
members, each of whom qualifies as a “non-employee director,” as such term is defined from time to time in Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, and an “outside director,” as such term is defined from time to time in Section 162(m) of the Internal
Revenue Code of 1986, as amended, and the rules and regulations there under).
Compensation Objectives
In light of the relatively early stage of commercialization of our products, we recognize the importance of attracting and retaining key
employees with sufficient experience, skills, and qualifications in areas vital to our success, such as operations, finance, sales and marketing,
research and development, engineering, and individuals who are committed to our short- and long-term goals. The Compensation Committee
has designed our executive compensation programs with the intent of attracting, motivating, and retaining experienced executives and, subject
to our limited financial resources, rewarding them for their contributions by offering them a competitive base salary, potential for annual cash
incentive bonuses, and long-term equity-based incentives, typically in the form of stock options. The Compensation Committee strives to
balance the need to retain key employees with financial prudence given our history of operating losses, limited financial resources and the
early stage of our commercialization.
Executive Officers and Director Compensation Process
The Compensation Committee considers and determines executive compensation according to an annual objective setting and
measurement cycle. Specifically, corporate goals for the year are initially developed by our executive officers and are then presented to our
board of directors and Compensation Committee for review and approval. Individual goals are intended to focus on contributions that facilitate
the achievement of the corporate goals. Individual goals are first proposed by each executive officer, other than the president and CEO, then
discussed by the entire senior executive management team and ultimately compiled and prepared for submission to our board of directors and
the Compensation Committee, by the president and chief executive officer. The Compensation Committee sets and approves the goals for the
president and chief executive officer. Generally, corporate and individual goals are set during the first quarter of each calendar year. The
objective setting process is coordinated with our annual financial planning and budgeting process so our board of directors and Compensation
Committee can consider overall corporate and individual objectives in the context of budget constraints and cost control considerations.
Annual salary increases, bonuses, and equity awards, such as stock option grants, if any, are tied to the achievement of these corporate and
individual performance goals as well as our financial position and prospects.
Under the annual performance review program, the Compensation Committee evaluates individual performance against the goals for the
recently completed year. The Compensation Committee’s evaluation generally occurs in the first quarter of the following year. The evaluation
of each executive (other than the president and chief executive officer) begins with a written self-assessment submitted by the executive to the
president and chief executive officer. The president and chief executive officer then prepares a written evaluation based on the executive’s
self-assessment, the president and chief executive officer’s evaluation, and input from others within the Company. This process leads to a
recommendation by the president and chief executive officer for a salary increase, bonus, and equity award, if any, which is then considered
by the Compensation Committee. In the case of the president and chief executive officer, the Compensation Committee conducts his
performance evaluation and determines his compensation, including salary increase, bonus, and equity awards, if any. We generally expect,
but are not required, to implement salary increases, bonuses, and equity awards, for all executive officers, if and to the extent granted, by April
1 of each year.
Non-employee director compensation is set by our board of directors upon the recommendation of the Compensation Committee. In
developing its recommendations, the Compensation Committee is guided by the following goals: compensation should be fair relative to the
required services for directors of comparable companies in our industry and at our Company’s stage of development; compensation should
align directors’ interests with the long-term interest of stockholders; the structure of the compensation should be simple, transparent, and easy
for stockholders to understand; and compensation should be consistent with the financial resources, prospects, and competitive outlook for the
Company.
In evaluating executive officer and director compensation, the Compensation Committee considers the practices of companies of similar
size, geographic location, and market focus. In order to develop reasonable benchmark data the Compensation Committee has referred to
publicly available sources such as www.salary.com and the BioWorld Survey. While the Compensation Committee does not believe
benchmarking is appropriate as a stand-alone tool for setting compensation due to the unique aspects of our business objectives and current
stage of development, the Compensation Committee generally believes that gathering this compensation information is an important part of its
compensation-related decision making process.
87
The Compensation Committee has the authority to hire and fire advisors and compensation consultants as needed and approve their fees.
No advisors or compensation consultants were hired or fired in fiscal 2014. The Compensation Committee is also authorized to delegate any
of its responsibilities to sub committees or individuals as it deems appropriate. The Compensation Committee did not delegate any of its
responsibilities in fiscal 2014.
ITEM 12.
STOCKHOLDER MATTERS.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
Beneficial Ownership Information
The following table sets forth certain information as of January 31, 2015 concerning the beneficial ownership of common stock for: (i)
each director and director nominee, (ii) each Named Executive Officer in the Summary Compensation Table under “Executive Compensation”
above, (iii) all executive officers and directors as a group, and (iv) each person (including any “group” as that term is used in Section 13(d)(3)
of the Exchange Act) known by us to be the beneficial owner of 5% or more of our common stock. The address for each of the persons below
who are beneficial owners of 5% or more of our common stock is our corporate address at 14 Norfolk Avenue, South Easton, MA 02375.
Beneficial ownership has been determined in accordance with the rules of the SEC and is calculated based on 18,739,913 shares of our
common stock issued and outstanding as of January 31, 2015. Shares of common stock subject to options, warrants, preferred stock or other
securities convertible into common stock that are currently exercisable or convertible, or exercisable or convertible within 60 days of January
31, 2015, are deemed outstanding for computing the percentage of the person holding the option, warrant, preferred stock, or convertible
security but are not deemed outstanding for computing the percentage of any other person.
Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in
the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own.
Name
Richard T. Schumacher (1)
Jeffrey N. Peterson, MS (2)
Kevin A. Pollack, Esq. MBA (3)
Vito J. Mangiardi, MBA (4)
Michael S. Urdea, Ph D (5)
Edmund Y. Ting, Ph.D (6)
Alexander V. Lazarev, Ph.D (7)
Nathan Lawrence, PhD (8)
Richard Thomley (9)
All Executive Officers and Directors as a Group (nine persons)
Number of
Shares
of Common
Stock
Beneficially
Owned
Percent of
Class
1,753,964
643,976
699,500
526,000
548,500
263,098
205,791
228,218
156,670
5,025,717
8.9%
3.3%
3.6%
2.7%
2.9%
1.4%
1.1%
1.2%
0.8%
22.0%
1)
2)
3)
4)
Includes (i) 410,635 shares of common stock issuable upon exercise of options; (ii) 438,675 shares of common stock issuable upon the
exercise of warrants. Amount does not include 20,162 shares of common stock held by Mr. Schumacher’s minor son as his wife
exercises all voting and investment control over such shares.
Includes (i) 161,000 shares of common stock issuable upon exercise of options, and (ii) 217,000 shares of common stock issuable upon
exercise of warrants.
Includes (i) 100,000 shares of common stock issuable upon exercise of options, and (ii) 251,000 shares of common stock issuable upon
the exercise of warrants
Includes (i) 100,000 shares of common stock issuable upon exercise of options, and (ii) 193,000 shares of common stock issuable upon
the exercise of warrants.
88
5)
6)
7)
8)
9)
Includes (i) 87,500 shares of common stock issuable upon exercise of options, and (ii) 177,000 shares of common stock issuable upon
the exercise of warrants.
Includes (i) 227,590 shares of common stock issuable upon exercise of options, and (ii) 11,360 shares of common stock issuable upon
the exercise of warrants.
Includes (i) 189,380 shares of common stock issuable upon exercise of options, and (ii) 4,350 shares of common stock issuable upon the
exercise of warrants.
Includes (i) 199,380 shares of common stock issuable upon exercise of options, (ii) 8,220 shares of common stock issuable upon the
exercise of warrants. Mr. Lawrence is Vice President of Sales and Marketing.
Includes (i) 16,670 shares of common stock issuable upon exercise of options, (ii) 110,000 shares of common stock issuable upon the
exercise of warrants. Mr. Thomley is Chief Financial Officer.
Equity Compensation Plan Information
We maintain a number of equity compensation plans for employees, officers, directors and other entities and individuals whose efforts
contribute to our success. The table below sets forth certain information as of our fiscal year ended December 31, 2014 regarding the shares of
our common stock available for grant or granted under our equity compensation plans.
Plan Category
Equity compensation plans approved by security holders(1)
________________________
(1) Includes the following plans: 1999 Non-Qualified Stock Option Plan, 2005 Equity Incentive Plan and 2013 Equity Incentive Plan.
3,406,250
Number of securities to
be issued upon exercise of
outstanding options
Weighted-average
exercise price of
outstanding options
$0.51
Number of securities
remaining available for
future issuance under
equity compensation
plans
1,403,750
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; AND DIRECTOR INDEPENDENCE.
Board Independence
Our board of directors has reviewed the qualifications of each of Messrs. Peterson, Mangiardi and Pollack, constituting more than a
majority of our directors and has affirmatively determined that each individual is “independent” as such term is defined under the current
listing standards of the OTC Markets. The board of directors has determined that none of these directors has a material relationship with us
that would interfere with the exercise of independent judgment. In addition, each member of the Audit Committee is independent as required
under Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Independent Registered Public Accounting Fees
The following is a summary of the fees billed to the Company by Marcum LLP, the Company’s current independent registered public
accounting firm, for the fiscal year ended December 31, 2014 and 2013:
Audit Fees
Audit-Related Fees
Tax and Other Fees
Fiscal 2014
Fees
120,000
56,799
-
176,799
$
$
Fiscal 2013
Fees
120,000
23,661
-
143,661
$
$
Audit Fees. Consists of aggregate fees billed for professional services rendered for the audit of the Company’s consolidated financial
statements and review of the interim consolidated financial statements included in quarterly reports, as well as services that are normally
provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements.
89
Audit-Related Fees. Consists of aggregate fees billed for assurance and related services that are reasonably related to the performance of
the audit or review of the Company’s consolidated financial statements and are not reported under “Audit Fees.”
Audit Committee Policy on Pre-Approval of Services
The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered
public accounting firm. These services may include audit services, audit-related services, tax services, and other services. Pre-approval is
generally provided for up to one year. The Audit Committee may also pre-approve particular services on a case-by-case basis.
90
PART IV
Item 15 Exhibits and Financial Statement Schedules.
Exhibit No.
3.1 Restated Articles of Organization of the Company
3.2 Articles of Amendment to Restated Articles of Organization of the Company
3.3 Articles of Amendment to Restated Articles of Organization of the Company, as amended
3.4 Articles of Amendment to Restated Articles of Organization of the Company, as amended
3.5 Articles of Amendment to Restated Articles of Organization of the Company, as amended
3.6 Articles of Amendment to Restated Articles of Organization of the Company, as amended
3.7 Amended and Restated By-Laws of the Company
3.8 Amendment to Amended and Restated By-Laws of the Company
3.9 Articles of Amendment to Restated Articles of Organization of the Company, as amended
3.10 Articles of Amendment to Restated Articles of Organization of the Company, as amended
3.11 Articles of Amendment to Restated Articles of Organization of the Company, as amended
4.1 Specimen Certificate for Shares of the Company’s common stock
4.2
4.3
4.4
4.5
4.6
4.7
Description of Capital Stock (contained in the Amended and Restated Articles of Organization, as amended,
of the Company filed as Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 and 3.7)
Rights Agreement dated as of February 27, 2003 between the Company and Computershare Trust Company,
Inc.
Amendment No. 1 to Rights Agreement dated April 16, 2004 between the Company and Computershare
Trust Company, Inc.
Amendment No. 2 to Rights Agreement dated November 8, 2011 between the Company and Computershare
Trust N.A.
Securities Purchase Agreement dated November 21, 2007 between the Company and the purchasers named
therein
Registration Rights Agreement dated November 21, 2007 between the Company and the purchasers named
therein
Securities Purchase Agreement dated February 12, 2009 between the Company and the purchasers named
therein
4.8
4.9 Form of 15-Month Preferred Stock Warrant
4.10 Form of 30-Month common stock Purchase Warrant
4.11 Amendment No. 1 to 30-Month common stock Purchase Warrant
4.12 Amendment No. 2 to 30-Month common stock Purchase Warrant
4.13
4.14
Registration Rights Agreement dated February 12, 2009 between the Company and the purchasers named
therein
Securities Purchase Agreement dated November 18, 2009 between the Company and the purchasers named
therein
Registration Rights Agreement dated November 18, 2009 between the Company and the purchasers named
therein
4.15
4.16 Series B Preferred Stock Warrant
91
Reference
A-3.1**
B-3.1**
O-3.1**
L-3.1**
P-3.1**
U-3.1**
A-3.2**
C-3.3**
W-3.1
X-3.1
Z-3.1
D-4.1**
A-3.1 & 3.2,
B-31, O-31,
L-31, P-31
and U.31**
E-4**
F-4**
U-4.2**
G-4.9**
G-4.10**
L-4.1**
L-4.3**
L-4.4**
Q-4.2**
S-4.1**
L-4.5**
O-4.1**
O-4.3**
O-4.2**
Exhibit No.
Reference
4.17 Amendment No. 1 to Series B Convertible Preferred Stock Purchase Warrant
4.18 Amendment No. 2 to Series B Convertible Preferred Stock Purchase Warrant
4.19
4.20
Securities Purchase Agreement dated April 8, 2011 between the Company and the Purchasers Named
Therein
Registration Rights Agreement dated April 8, 2011 between the Company and the Purchasers Named
Therein
Amendment No. 1 to Securities Purchase Agreement dated June 21, 2011, amending Securities Purchase
Agreement dated April 8, 2011 between the Company and the Purchasers Named Therein
4.21
4.22 Form of common stock Purchase Warrant
4.23 Form of Warrant Issued to Lenders
4.24 Form of Promissory Note Issued to Lenders
4.25 Form of common stock Purchase Warrant
4.26 Form of Warrant
4.27 Securities Purchase and Exchange Agreement, dated December 28, 2012
4.28 Securities Purchase and Exchange Agreement, dated December 28, 2012
4.29 Form of Warrant
Registration Rights Agreement, dated February 6, 2013 between the Company and Purchasers named
therein
4.30
4.31 10% Convertible Debenture, issued on June 7, 2013 for a Purchase price of $250.00
4.32 Securities Purchase and Exchange Agreement, dated December 12, 2013
4.33 Form of Warrant, initial exercise date December 12, 2013
4.34 Registration Rights Agreement, dated December 12, 2013
10.1 1999 Non-Qualified Stock Option Plan*
10.2 1999 Employee Stock Purchase Plan*
10.3 2005 Equity Incentive Plan.*
10.4 Amendment No. 1 to 2005 Equity Incentive Plan*
10.5 Description of Compensation for Certain Directors*
10.6 Severance Agreement between the registrant and Richard T. Schumacher*
10.7 Form of Severance Agreement including list of officers to whom provided*
10.8
10.9
10.10
10.11
10.12
Consent Agreement, dated May 29, 2007, by and among the registrant, PBI Source Scientific, Inc., Source
Scientific, LLC, BIT Analytical Instruments, Inc., Richard W. Henson and Bruce A. Sargeant.
Asset Purchase Agreement dated April 16, 2004 between the Company, BBI Biotech Research
Laboratories, Inc. and SeraCare Life Sciences, Inc.
Technology Transfer and Patent Assignment Agreement dated October 7, 1996, between Bioseq, Inc. and
BioMolecular Assays, Inc.
Amendment to Technology Transfer and Patent Assignment Agreement dated October 8, 1998 between
Bioseq, Inc. and BioMolecular Assays, Inc.
Nonexclusive License Agreement dated September 30, 1998 between Bioseq, Inc. and BioMolecular
Assays, Inc.
Agreement for Research Services dated February 1, 2006 by and between the registrant and the University
of New Hampshire
10.13
10.14 Placement Agency Agreement between the Placement agent and the Company, dated November 8, 2011
10.15 Form of Securities Purchase Agreement
10.16 Form of Escrow Agreement, as amended
10.17 Form of Securities Purchase Agreement
10.18 Securities Purchase Agreement, dated June 7, 2013
23.1 Consent of Independent Registered Public Accounting Firm (Marcum LLP)
Principal Executive Officer and Principal Financial Officer Certification Pursuant to Item 601(b)(31) of
Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Principal Executive Officer and Principal Financial Officer Certification Pursuant to Item 601(b)(32) of
Regulation S-K, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
31.1
32.1
101 Interactive Data File
*Management contract or compensatory plan or arrangement.
**Previously filed as follows.
92
Q-4.1**
S-4.2**
P-4.1**
P-4.3**
R-4.1**
P-4.2**
T-4.1**
T-4.2**
U-4.1**
V-4.1**
W-4.2
X-4.1
X-4.2
X-4.3
Y-4.1
Z-4.1
Z-4.2
Z-4.3
H**
H**
I-99.1**
M-10.1**
N-10.7**
N-10.6**
N-10.7**
J-10.1**
F-1**
N-10.11**
N-10.12**
N-10.13**
K-10.1**
U-10.1**
U-10.2**
U-10.3**
V-3.1**
Y-10.1
Filed
herewith
Filed
herewith
Filed
herewith
Filed
herewith
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Registration Statement on
Form S-1 (Registration No. 333-10759) filed with the Commission on August 23, 1996.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Quarterly Report on Form 10-
Q for the fiscal quarter ended September 30, 2004.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2002.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Annual Report on Form 10-
KSB for the fiscal year ended December 31, 2004.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission March 12, 2003.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission April 16, 2004.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Registration Statement on
Form S-3 (Registration No. 333-148227) filed with the Commission on December 20, 2007.
We previously filed this exhibit as an appendix to the registrant’s proxy statement filed June 14, 1999.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Registration Statement on
Form S-8 (Reg. No. 333-128594) filed with the Commission on September 26, 2005.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on June 1, 2007.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on February 7, 2006.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on February 18, 2009.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on September 29, 2008.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Annual Report on Form 10-K
filed with the Commission on March 27, 2008.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on November 19, 2009.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on April 12, 2011.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on August 11, 2011.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on June 21, 2011.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on October 6, 2011.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Quarterly Report on Form 10-
Q for the fiscal quarter ended September 30, 2011.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on November 10, 2011.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on February 9, 2012.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on January 4, 2013.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on February 13, 2013.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on June 13, 2013.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on December 12, 2013.
93
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 31, 2015
Pressure BioSciences, Inc.
By: /s/ Richard T. Schumacher
Richard T. Schumacher
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacity and on the dates indicated.
Name
/s/ Richard T. Schumacher
Richard T. Schumacher
/s/ Richard P. Thomley
Richard P. Thomley
/s/ Jeffrey N. Peterson
Jeffrey N. Peterson
/s/ Mickey Urdea
Michael S.Urdea, Ph.D.
/s/ Vito Mangiardi
Vito J. Mangiardi
/s/ Kevin Pollack
Kevin A. Pollack
Capacity
President, Chief Executive Officer,
Treasurer, Clerk and Director (Principal
Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Chairman of the Board of Directors
Director
Director
Director
94
Date
March 31, 2015
March 31, 2015
March 31, 2015
March 31, 2015
March 31, 2015
March 31, 2015
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of Pressure BioSciences, Inc. (formerly Boston Biomedica, Inc.)
on Form S-8 (File Nos. 333-30320, 333-24770, 333-128594, and 333-155405) and Form S-3 (File No. 333-148227 and File No. 333-176828)
of our report dated March 31, 2015, with respect to our audit of the consolidated financial statements of Pressure BioSciences, Inc. as of
December 31, 2014 and 2013 and for the years then ended (which report includes an explanatory paragraph related to uncertainty of the
Company’s ability to continue as a going concern), which report is included in this Annual Report on Form 10-K of Pressure BioSciences,
Inc., for the year ended December 31, 2014.
EXHIBIT 23.1
/s/ Marcum LLP
Marcum LLP
Boston, Massachusetts
March 31, 2015
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, Richard T. Schumacher, certify that:
1. I have reviewed this report on Form 10-K of Pressure BioSciences, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-
15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 31, 2015
/s/ Richard T. Schumacher
Name: Richard T. Schumacher
Title:
President and Chief Executive Officer
(Principal Executive Officer )
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, Richard P. Thomley, certify that:
1. I have reviewed this report on Form 10-K of Pressure BioSciences, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-
15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 31, 2015
/s/ Richard P. Thomley
Name: Richard P. Thomley
Title:
Chief Financial Officer
(Principal Financial Officer)
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
EXHIBIT 32.1
In connection with the Annual Report on Form 10-K of Pressure BioSciences, Inc., a Massachusetts corporation (the “Company”) for the
period ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard T.
Schumacher, President and Chief Executive Officer, of Pressure BioSciences, Inc., a Massachusetts corporation (the “Company”), do hereby
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United
States Code) that:
(1) The Report of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Dated: March 31, 2015
/s/ Richard T. Schumacher
Richard T. Schumacher
President and Chief Executive Officer
(Principal Executive Officer)
A signed original of this written statement required by Section 906 has been provided to Pressure BioSciences, Inc., and will be retained by
Pressure BioSciences, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
EXHIBIT 32.2
In connection with the Annual Report on Form 10-K of Pressure BioSciences, Inc., a Massachusetts corporation (the “Company”) for the
period ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard P.
Thomley, Chief Financial Officer, of Pressure BioSciences, Inc., a Massachusetts corporation (the “Company”), do hereby certify, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) that:
(1) The Report of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Dated: March 31, 2015
/s/ Richard P. Thomley
Richard P. Thomley
Chief Financial Officer
(Principal Financial Officer)
A signed original of this written statement required by Section 906 has been provided to Pressure BioSciences, Inc., and will be retained by
Pressure BioSciences, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.